What is Inventory Financing?
The inventory financing It is a means used by consumer product companies and dealers to mobilize the static money they have in the form of inventory. The purpose of this type of financing is achieve liquidity from the commitment of product inventory, as a business expansion objective.
This financing consists of the businessman obtains a loan for the value of the inventory that you want to mobilize and at the moment in which those products begin to be sold, the entrepreneur can pay the part of the loan related to the products that have been sold or buy more inventory to trade.
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Take advantage of inventory as a very important source of resources
Stimulates the activities of the company
Medium and long-term financing
Purchase option at the end of the contract
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How does Inventory Financing work?
He inventory financing It is a very common resource that consumer product companies or dealers have access to, in order to deliver their products in inventory as collateral to obtain a loan and have the liquidity that keeping these immobilized products deprives them.
When a company needs to have liquidity for its expansion, requesting inventory financing is a very common practice rather than going to a traditional bank. The way this procedure works is nothing more than obtain a credit for the value of the products that are immobilized in warehouse and thus use that money to carry out the expansion that the company needs, such as an increase in inventory due to an increase in expected sales.
Once the products begin to be traded, the entrepreneur can pay the proportional part of the credit granted related to the product in question that has been sold, or use the money to buy more inventory (as can happen in the case of a dealer that it needs more cars to meet the requests of its customers).
At the moment in which the credit is granted, the creditor must sign a contract in which he obtains ownership of the products that are in the inventory, in order to be able to dispose of them if it happens that they are not You can meet the payments established in the credit contract that have been granted. Basically what this type of financing consists of is a kind of pawn products that a company has and that its purpose is that they be traded.
Before carrying out the negotiation, a verification will be made that the products that are going to be delivered as collateral for the loan are durable, identifiable and that they are going to be sold at the price stipulated by the market. The truth is that products in storage tend to reduce their market value, especially in the case of cars, so the loan cannot reach the full value of the products.
The best moment to request this type of loan is if the inventory available to the company is selling positively and an increase in upcoming sales is expected, since in the event that the inventory is not selling properly, you may not find a lender who is willing to extend the credit.
During the duration of the financing contract it is necessary for the company to develop track products that they are there and even the creditor can carry out these inspections in order to verify that your loan is working as it should and the value of the products it is being preserved.
Besides it is essential present a business project to the creditor for communicate how the loan will be invested In addition to specifying how you plan to return the money that has been granted.
Advantages of Inventory Financing
Financing thanks to the Merchandise Inventory
Financing thanks to inventories of durable products
A source of important resources for your company
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