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Having good credit will open many doors for you but it can also help you get additional business financing and qualify for it. One example is an inventory loan, which is financing that can be used to purchase items that you’ll sell or use to operate your business.
Even if you have poor credit, an inventory loan is a good fit for you. That is because with an inventory loan, there are other ways to show lenders that you can be a good borrower without showing your credit score. There are several inventory loans options available that do not require an excellent credit score.
Understand the Lender’s Point of View
The funds from an inventory loan can be used to invest in inventory that you will sell or use for operational costs. Remember that the inventory you buy with your loan will be used as collateral by your lender. If you are not able to repay the loan, the lender can seize your inventory. The lender does this so that they can protect themselves in case they are not fully paid in full.
If selling your inventory is difficult or time-consuming to sell, the collateral does not give the lender protection. For simplicity’s sake, imagine you were applying for an inventory loan and all that mattered was your credit score and the value of your collateral. Ultimately, it is important to consider the lender’s perspective. Despite having a low score, you will want to show them the strong aspects of your business to make them qualify you.
Show Your Sales History
By showing a strong sales history, lender will be more likely to provide you with an inventory loan. It needs to show that you can sell the product that way the lender knows they are going to be investing in you and your business.
Lenders do not want you to default so show them that the numbers prove you can turn your inventory into cash.
Project Sales Numbers
The logical next step to ensuring your loan application gets approved is to create detailed breakdowns of your projected sales numbers. This will also help the lender see and understand what they are going to be investing in.
You are also doing the analysis to show the lender that you are not being careless. Lenders want to know that they are dealing with professionals and a sales projection analysis will show them that. Consider hiring a professional to help you with this if you are not comfortable putting one together.
Show that Your Products Sell Fast
The inventory you buy is the lender’s final recourse. You will use the process of your loan for a product that is easy to liquidate. You should consider using products that have a shore sales cycle. It will help you take away some of the lender’s risk.
The Bottom Line
Inventory loans are popular among small to medium-sized retailers in the wholesale and retailer industry. This is because these businesses succeed or fail based on the inventory, they need to meet the demand of the customer.
Inventory loans, while they are only used to finance inventory purchases, can be structured as term loans or lines of credit, which makes them a flexible option for many small business owners. Additionally, if you’re looking to capitalize on peak selling season or just don’t have the available cash to purchase inventory, an inventory loan may be a viable option for your business.
