Benefits of Inventory Financing

Inventory is among the most crucial assets of any company. Consequently, before choosing to use this financing option, it is crucial to understand the benefits it entails.

• Instantaneous Funds: The loan is authorized rapidly because the application process is simpler compared to other standard finance schemes, and the money could be utilized to settle obligations in case of emergencies.
• Enhances Cash Flow: Due to inventory or other items, companies may have to leverage the funds that otherwise would’ve remained locked up. This inventory funding scheme allows firms to increase their cash flow, pay staff, or purchase new goods since it releases or unlocks the locked-in funds.
• Gains Via Company’s Sales: Companies can get additional funds by leveraging this credit plan and unlocking the funds that have been locked up. The establishment might use these extra funds to boost sales or grow the existing business.
• Favorable Payment Alternatives: A company can strengthen its economic condition by opting for an inventory financing loan. The enterprise can leverage these surplus funds to pay down its debt and improve its economic outlook. In such a scenario, the debtor may also be granted additional time to make the loan payments or a waiver of late penalties.
• Preplanning For Busy Seasons: During slowdown periods, a temporary business can leverage the funds from this loan to build up its inventory. Making such preparations in anticipation of busy times of the year, like the holidays, may prove to be a beneficial business decision.
• Alternative To Conventional Business Loan: Despite the high rates of interest on an inventory loan, SMEs and startup enterprises that cannot get a standard business loan often turn to the inventory finance option.
• Availability of Discounts: A company may be qualified for hefty deals from the creditor if it sells merchandise with a high resale value. A long-term financing option also expands the line of credit as the company grows.

What Is Inventory Financing?

Inventory financing or inventory funding is an asset-backed loan that can be used to borrow money against the entire or a portion of the company’s inventory or stock. The lending institution determines a certain percentage depending on the company’s inventory valuation to determine how much of a loan is given.
Depending on the number of stocks, Piramal Finance will select and decide its own percentage and provide a different interest rate. In this case, the inventory secures the loan by serving as collateral. Companies and entrepreneurs who own and oversee substantial amounts of inventory can use this form of financial instrument. Manufacturers, merchants, suppliers, and distributors may leverage inventory financing to buy goods.

Inventory Financing: How Does It Work?

The process of obtaining funds for all or a portion of your inventory is known as inventory financing. Businesses obtain a loan against inventory based on the anticipated value that can be recovered via selling the inventory offered as collateral. Depending on these criteria, creditors determine the loan’s repayment plan and proceed.

Since they frequently have their capital restricted due to a longer cash conversion process, businesses that manufacture and sell consumer goods, such as cars and FMCG products, are more likely to rely on various types of inventory financing. If accessible, this financing could be utilized to increase sales.