Financial planning is key to running a success retail business. By planning ahead, you can avoid cash flow problems that could cut into your inventory and curtail business growth and expansion. In the retail business, your inventory is, in essence, your “bread and butter.” If you want to compete in your niche of the market, maintaining your inventory is of utmost importance. Cash flow problems could greatly hinder your retail business by restricting your sales. When you run low or out of high volume products, you run the risk of alienating prospective buyers and even losing regular clientele.
As a retail business owner, you need to plan and prepare for financial complications that may arise. You never know when you’ll face cash flow problems that could cut into your operations and supply. By researching and understanding your options for inventory financing, you can be one step ahead in obtaining financial assistance in your time of need.
Advantages of Inventory Financing
At some stage in your retail business, you may need to finance the purchase of inventory to replenish your stock. You may have purchased goods that didn’t sell as fast as you hoped, reducing the amount of cash you have to invest in more productive products. When cash flow runs low, financing inventory keeps you from having to turn customers away due to not having the products they want. There are various advantages to obtaining financing for purchasing new inventory or maintaining the stock of inventory you require for your retail store. Here are just a few:
Increases Sales Volume
Through inventory financing, you can quickly restore your inventory if your products sold out much faster than you anticipated. You’ll have the cash on hand to purchase the volume of goods you require when you need it most. This will enable you to grow your customer base as consumers realize they can count on you for the goods they’re looking for. Inventory financing can resolve cash flow problems for purchasing or manufacturing the goods you sell, enabling you to increase your volume of sales. Higher sales volume will facilitate payback of your inventory loan.
Helps You Prepare for Busy Season
With extra cash from inventory financing, you can prepare for busy seasons by stocking up on the goods you need. You’ll be ready to handle whatever orders come your way without making customers wait or return at a later date.
Allows You to Use Inventory as Collateral
By using your retail inventory as collateral, you can avoid putting up your home, car or other valuable possession as security against your financing loan. Whenever possible, it’s good to keep personal finances and assets separate from business affairs.
Options for Inventory Financing
As a retail business owner, you have various options for financing the inventory you need, ranging from traditional bank loans to alternative financing. By considering the pros and cons of each, you can decide the financing option best suited for your particular business.
Traditional Term Loan
Traditional term loans are perhaps the most common means of financing a business. This loan enables you to borrow a specific sum of money for a specified business purpose under specific repayment terms. These terms may vary from one borrower to another, depending on a business’s history, income, and credit rating. Traditional term loans can be used for purchasing inventory, office equipment, buying or renting a new location, etc. As this loan comes with fixed terms and fixed interest rate, you can establish a monthly payment plan that will enable you to repay the funds you borrow within the specified time.
Business Line of Credit
The business line of credit is yet another financing option for purchasing inventory. A business line of credit works like a credit card in providing you with funds to cover business needs. This flexible means of funding gives you cash for purchasing inventory, paying off debts, manufacturing new goods and more. Low interest rates and ease in qualifying make this a viable financing option for retail businesses that are just starting out or have less than stellar credit rating. The number of funds you qualify for will depend on the revenues generated by your business, its history and credit rating.
Merchant Cash Advance
Merchant cash advances fall under the category of alternative financing. Unlike traditional business loans or business lines of credit, this funding method isn’t a loan. Merchant cash advances are funds that are advanced to a business against its future credit and debit card sales. Merchant cash advance lenders use projected future income from debit and credit card sales to determine how much cash to make available to your business today. In like manner, the payback for your advance is determined by revenue received from daily credit and debit card sales. As this revenue may differ from one day to the next, your payback is adjusted automatically in accordance with the cash flow on any given day. This flexible repayment plan makes it easy for you to comply with repayment terms.
Retail business owners looking for alternative inventory financing should consider what a merchant cash advance has to offer. To qualify for this advance, your business must accept credit or debit card payments from your customers. In choosing this type of financing, you gain flexible, simple repayment terms that give you greater financial freedom to grow your retail business.
Merchant cash advances can be used in numerous ways to benefit a business. Starter companies could invest these funds into their advertising or marketing campaign to build their brand. If you’re an established retailer, you could use this cash to hire and train new personnel or make upgrades to your shop.
Perhaps you’ve dreamed of expanding your inventory by purchasing new merchandise or manufacturing a new line of products. A merchant cash advance could be just what you need to make that dream a reality. You could even build a new warehouse to store your goods until you launch them on the market. Merchant cash advances can provide your retail business with the cash it needs to reach its full potential.