What sort of loan is right for your cash-strapped company? For some types of businesses such as wholesalers, distributers and manufacturers, inventory is a main asset. These companies may have the option of using stock soon after it has been purchased as collateral to obtain a secured short term loan. This is called inventory financing. It is a unique opportunity to leverage existing inventory.

This type of advance can benefit a small to medium sized business in many ways. It can alleviate short term inventory shortages and make sure that the goods remain on the shelves to continue to draw in customers. Some businesses have seasonal fluctuations in sales and the loan can provide assistance during the lean times. In addition, some retailers might have trouble getting a traditional bank loan due to a poor credit history or a lack of cash flow.

Despite having an entire warehouse full of product to ship out, a wholesaler might not have the cash available to keep producing more goods. Therefore, inventory financing might be a good choice to keep business moving along.

What are some criteria to decide if inventory financing is a good option for your business? If your company keeps a high stock available to meet demand, turns over inventory quickly and easily, carries a relatively small amount of debt and has established products with a proven sales history then you should consider this type of loan. If you have already tried to finance your receivables first and have not managed to obtain sufficient funding then go for it.

The lender can advance a significant percentage of the appraised value of the inventory. They don’t use market value but a somewhat lower number such as the Net Orderly Liquidation Value or the Forced Sale Liquidation Value. Once you receive the funds you can use them for any business transaction.

Your business can benefit financially in several ways as a result of obtaining inventory financing. First, by purchasing larger quantities at a time it may be possible to receive bulk discounts on both product and shipping costs. Second, moving to larger production runs could result in increased efficiency and lower costs. Third, you will have the flexibility to procure inventory when prices are lower. Fourth, your company will be in a better position to negotiate higher selling prices without the fear of your cash flow running dry.

After assessing company financial needs and weighing other loan options you might discover that this is the best option to secure a steady stream of cash for your business.