Wednesday, June 23, 2021

Inventory Financing

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Every business which involves trade, maintenance of stocks, or inventory is a basic necessity. At some times, they have to replenish their inventory, sometimes in bulk to reduce cost. The turn-around time for conversion of stocks and inventory to cash is variable, resulting in capitals getting locked in them.

An inventory loan in that situation helps to unlock capital ensuring cash flow and liquidity, keeping the stock asset intact. Inventory financing is based on the value of the stock in hand, which helps the business to look for expansion.

Types of Inventory Financing in India:

Based on some criteria, there are two different types of loan against inventory available in India:

  1. Inventory Loan: It is a one-time loan offered to borrowers to fulfil the emergency cash requirements against the resale value of the inventory.
  1. Inventory Line of Credit: It is an ongoing funding solution to ensure capital infusion in cases of unseen business expenses. This is a form of pay later finance that helps the business to restore the balance in the credit. 

Eligibility Criteria for an inventory loan 

Inventory loans are available for the following types of business:

1) Travel agents.

2) Kirana store owners.

3) Distributors.

4) B2B buyers. 

Documents Required for an inventory loan

Below is the list of documents which is important for the requirements of the best inventory financing company:

  1. Valid KYC documents of the promoter as well as the business including PAN card.
  2. Bank statement for a specified duration.
  3. Balance sheet and P&L Account Statement.
  4. Personal ITRs.
  5. Business Registration information.
  6. Business appraisal report.
  7. Copies of inventory invoices.
  8. Collateral documents.

Below are some features of Inventory Financing

1) It unlocks blocked funds in inventory.

2) Enhance inventory as well as support liquidity.

3) Funding between 90% and 100% of the inventory value. 

Inventory financing advantages and disadvantages:

 Advantage:

 

  1. Short term advance loan for inventory purchase is the perfect solution to grow your stock to help generate healthy sales. A mobile business cycle of stock and sales are proportional to each other and the health of the business.

 

  1. The inventory loan does not completely manipulate the nature of fund use. A business can gain substantially by using additional capital to expand product lines and equip sales channels to increase business opportunities.

 

  1. It offers avenues to small and medium businesses to get finance which is otherwise ineligible for traditional loans.

 Disadvantage

1) Being a short term credit, it may not meet the long term needs of the business.

 

2) The repayment of an inventory loan is tied up with the life span of the inventory at hand.

 

3) It is suitable only for small businesses and is not particularly suited to the needs of large enterprises and large business.

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