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This blog was last updated on November 25, 2020.
As you research various small business loan options, you may be looking to understand more about inventory financing and what funding options exist for your business. Is inventory financing the right option for your business, and what alternatives exist that may be better suited? We’re here to help shed light on some of those considerations.
What is inventory financing?
Simply put, inventory financing is, as the term suggests, capital that you use to purchase inventory for your business. The product that your business invests in with the funds from inventory financing will then serve as collateral for the financing itself. This structure is similar to equipment financing, which involves purchasing equipment that will act as collateral for the loan.
If you’re looking to purchase inventory for your business, this could be an option for you. Before you dive in, be sure to explore all your options to find the financing option that suits your business best.
What you need to know about inventory financing
When considering any type of financing, you want to know the risks and limitations. If you’re looking for a loan simply for inventory, then inventory financing could be perfect for you. But there are certain limitations.
For one, inventory financing loans require collateral. Often, this collateral is the inventory itself, which will be transferred to the lender in the event of a default. However, if inventory supply isn’t enough to cover the loan plus interest and other fees, other collateral assets will be required. For instance: property, vehicles, equipment, and possibly personal assets belonging to the business owner.
Another important thing to know about inventory financing is that lenders can choose to rescind the funding at their discretion. For example, Automotive News reported that a car dealership had to declare bankruptcy and close its doors because they lost their funding unexpectedly. This isn’t necessarily the norm, but it is something to be aware of.
Inventory financing vs work capital loans
If you’re concerned that inventory financing may not be your best bet, you might want to consider looking into a working capital loan. With a working capital loan, you have the flexibility to use the funding for whatever your needs might be1. For instance, if you feel that 100% needs to go to inventory but later find that you can suffice with 80% with inventory and can benefit from 20% for leasing new equipment, you have the flexibility to do so. With a working capital loan for your inventory needs, you are in full control. You also have the option to pay back the loan early to save on interest costs, if that is an option.
Considering a working capital loan with Mulligan Funding
Getting yourself into the commitment of any type of financing is a big decision. Mulligan Funding works with various small- and medium-sized businesses, so we understand that. With the Mulligan team, we make accessing the funds you need seamless and provide support every step of the way. Plus, a working capital loan through Mulligan will never require collateral. If you have any questions, whether basic to understand more about a working capital loan, or to see if you would be able to qualify, we would love to help.
The information shared is intended to be used for informational purposes only and you should independently research and verify.
Note: Prior to January 23, 2020, Mulligan Funding operated solely as a direct lender, originating all of its own loans and Merchant Cash Advance contracts. From that date onwards, the majority of funding offered by Mulligan Funding will be by Loans originated by FinWise Bank, a Utah-chartered Bank, pursuant to a Loan Program conducted jointly by Mulligan Funding and FinWise Bank.