Can I get a loan to restock my shop or business inventory?
A business needs a constant supply of cash to meet daily operation overheads. Inventory management is one of them. You would have to restock your store as and when you notice an immediate surge in the demand for your goods. Unfortunately, sometimes, you might fall short of enough cash to purchase inventory.
Well, there is nothing to worry about, as you can apply for a loan for it. Before you apply for a loan to buy inventory, you should understand that there are various types of financing options, and each of them has its own upsides and downsides.
Most of the time, entrepreneurs prefer invoice financing. This is the most common and popular way to fund business inventory. Invoice financing could be used for a variety of business expenses. This funding method is applicable to businesses that sell goods on credit.
An invoice financing company would finance up to 85% of the value of invoices. The rest of the amount is handed to you after collecting money from your borrowers and deducting invoice fees. Invoice financing is the most popular method to purchase inventory because you do not have to pay interest.
However, this is not a suitable option when you have to purchase a large inventory and when you do not trade on credit. What to do then? Here are the financing options to purchase inventory:
A business loan for short term
A short-term business loan enables you to borrow money from a direct lender or a bank. Qualifying for a business loan may involve some terms and conditions. They vary by lender. You must have a good credit score.
In the case of a subprime credit report, a lender would be reluctant to lend money. The risk of default is suspected to be too high then. a business loan for the short term does not offer more than £5,000. In case of a default, a lender has no means to recover their money due to a lack of collateral. Therefore, they charge high interest rates.
- Small business loans are easily available. Online lenders are particularly flexible with approval.
- Payments are made in fixed instalments over a period of time, so there is no risk of falling into debt.
- You must have a good credit score to apply for these loans. Bad credit borrowers are also accepted, but high interest rates will be charged.
Large business loans
How much money you would need depends on the amount of inventory you need. It is likely that you need a large amount of money to purchase inventory. If that is so, you should consider a long-term business loan. Remember that the terms and conditions for these loans would be stricter. If you are a start-up, you will have to submit a business plan that discusses projected profits, too. You must be able to reveal to your lender how you would pay off the debt in case of a default.
Compared to an unsecured loan for a business, large business loans are quite more affordable as they charge low interest rates. This is because they are secured. You will have to secure these loans against a valuable asset so your lender can repossess it in case of default.
Inventory could serve as security, but sometimes lenders expect you to put down another collateral, too. It is not astonishing that some lenders may require you to give a personal guarantee. According to the personal guarantee, you will have to discharge your debt on your own if your business fails.
- You will need a decent credit rating. However, some may entertain bad credit applicants too.
- Fixed monthly payments will be made throughout the loan term.
- Despite collateral, these loans are quite expensive.
- You might be repudiated.
A business line of credit
A business line of credit is the best way to finance inventory and related expenses because you can withdraw funds as and when you want. The best part about the line of credit is that you only pay interest on the amount you borrow. As you pay back the amount, you are eligible to use that money. It is up to you how much money you want to withdraw at a time. However, you cannot borrow more than the available limit.
A business line of credit is similar to a business credit card. The only difference between them is that the former is a pre-approved loan with a higher limit, while the latter is a card that you use for smaller purchases. A line of credit is a more suitable and better option than credit cards when it comes to financing inventory.
At the time of applying for a business line of credit, a lender will run affordability checks the same way they do with other loans.
Risks related to inventory financing
You can employ several financing options to purchase inventory. All of them could be easily approbated, but it does not mean that they are not subject to risks.
- If you do not discharge the debt, you will end up paying high interest rates. Chances are you fall into an abyss of debt.
- If your inventory is secured, your lender will liquidate it. You will lose your asset.
What should you do while applying for an inventory loan?
You will find several lenders out there applying for an inventory loan. It is always enjoined that you never jump at the first offer. You should always try to research. Compare interest rates in order to choose the best deal. Carefully analyse how much money you need and which financing option will be suitable for you.
Summing up
Inventory loans can come in handy to finance your business inventory. As there are many financing options, you should always consider the advantages and drawbacks and then decide which one best suits your needs.
Are you growing faster in your UK-based business? If yes, then that is awesome. Do you still want to add more into your business loan knowledge? You are welcome here!
Hudson Brown is a master of the UK business sector as he shows in his research-based blogs and articles. He has a great skill of engaging users with his writings and turning them into loan aspirants. Hudson has more than 15 years of experience in business loan writing, editing and marketing.
What makes Hudson different from others is his passion for business writing. Every writing piece has a compilation of extensive research on the topic and a detailed explanation.
Well, you are not only going to apply for a business loan at Busiloans but also enhance your loan knowledge to apply again as a pro! Read, learn and become an expert like Hudson. Are you ready? You should be…
