Starting a new business is tough; no doubt. However, that just steps one. Now that you have your very own firm, what do you do next? The immediate answer that comes to mind would be to expand, right? But it’s not that easy, or that simple. Most businesses don’t have the funds or the opportunities to acquire large enough loans or have enough assets to offer as collateral. So, expansion becomes hard and often unthinkable.
Purchasing inventory is an integral part of any business. Often young enterprises will find it difficult to raise the finance to purchase inventory for future business. Therefore, your dream for expansion remains just that, a dream.
This is why inventory financing agreements are useful. They allow you to receive an inflow of short-term cash and in turn, you purchase the inventory that you need for your business’ future. The immediate answer that comes to mind would be to expand, right? But it’s not that easy, or that simple. Most businesses don’t have the funds or the opportunities to acquire large enough loans or have enough assets to offer as collateral. So, expansion becomes hard and often unthinkable.
What are inventory finance agreements?
When most firms borrow from investors or banks through loans and credit cards, however, by taking on many loans and maxing out your company’s credit card every time to buy inventory, hurts your credit score. This is why this method isn’t viable for your business in the long run. This is why a better choice would be to consider an inventory financing agreement. As the name says, an inventory financing agreement aims to help firms purchase future inventory by keeping their current inventory as collateral.
Generally, these agreements are quite useful for small and medium-sized industries that do not have the financial backing that large incorporated companies usually have in store. Mostly, these agreements become popular during the holiday season when most firms are scrambling to keep up with the expected increased demand and don’t want to risk turning customers down.
The Pros:
Inventory finance agreements can also help out firm to manage its inventory levels effectively. It allows you to have a constant stream of stock, and you can even use the money from the loan to invest in inventory management software. This would help you increase your business’ sales turnover later on because your levels stay at a healthy level. As the saying goes: you need money to make money!
Once you’ve got your inventory issues sorted out, you’ll be able to capitalize on the product that you produce maximally. This means more room for expansion! You can use this as an opportunity to increase your product portfolio and take your business to new heights.
The Cons
One major drawback to these agreements is the cost of it all. The setup costs tend to be huge because the initial inventory levels need to be evaluated and appraised for the agreement to take place. Then the appraisals need to happen at regular intervals and are mostly done on sight by an expert. The firm would, therefore, need to spend cash on the inventory at regular intervals. And as the name says, you cannot use the finance for anything other than inventory purchasing.
Conclusion
You know your business best, what it can take on, and what it cannot. The best thing you can do is make an informed decision that helps you manage your inventory and give you room for expansion. Inventory finance agreements are a great way to do that and allow for a constant stable flow, and stability in a startup is rare.
