Looking for an innovative solution that allows you to use inventory as collateral? Kickfurther innovates a unique approach that allows small businesses to give individuals the chance to buy inventory on consignment. We’re a low cost and flexible solution that has helped businesses grow and survive during the toughest economic times. However, there are other options that allow businesses to use inventory as collateral.
If you have been researching inventory loans you have probably heard about unsecured and secured inventory loans. Businesses that may be considered high risk to lenders may need to use a secured inventory loan or an alternative such as Kickfurther. If your credit history is questionable or you have short or inconsistent revenues or are a new business you may be struggling to find an inventory loan. You may be starting to think you just don’t qualify for an inventory loan but we are here to reassure you that you do qualify for an inventory loan. Before applying for an inventory loan you should evaluate your business plan to make sure you need one. We don’t say this to detour you but rather to encourage business owners to think through decisions extensively.
For example, let’s say you sell trendy jeans. You are a new company that has recruited influencers to advertise your brand. Word of mouth sales are picking up and next thing you know, a celebrity is recommending your line of jeans. Your company is starting to grow and it’s your job to keep up with the increase in demand. Part of keeping up with demand is making sure you have enough inventory. You may need to place an order much larger than the previous order but you don’t have the funds to do so. An inventory loan can provide the funds you need to purchase the amount of inventory you feel necessary. This is just one example of a company that could benefit from using an inventory loan.Below we will help business owners understand how to secure an inventory loans by using inventory as collateral.
What are the types of collateral for inventory funding?
When you use a secured loan with collateral the lender or bank can take ownership of the collateral if you default on the loan. When we say default, we mean miss multiple payments. Most banks won’t just take ownership of collateral with one missed payment. However, if you miss several payments or confess you are unable to repay the loan they can take ownership of the collateral. If you plan to borrow money to buy inventory, you can use the inventory you plan to buy as the collateral. Just about any kind of inventory can be used as collateral including. . .
- Apparel
- Vehicles
- Furniture
- Appliances
- Electronics
- Computers
- Office Supplies
- Cattle
- Shoes
- Jewelry
Assessing your Inventory Value
When you use a secured loan or inventory loan, the lender or bank will assess the value of your collateral and or assets. The business will get a portion of the assessed value. This is known as loan-to-value (LTV) ratio. For example, if you finance a vehicle you usually use the vehicle as collateral. If the blue book value of the vehicle is $10,000 and you can finance 110% LTV you can borrow $11,000 to purchase the vehicle. If the blue book value is $10,000 and you can finance 80% LTV, you can borrow $8,000 to purchase the vehicle. Inventory loan LTV’s work the same way, but typically lenders do not allow you to borrow 100% or more than 100% LTV. Most lenders allow businesses to borrow about 50% to 80% of the determined value of the collateral. If the bank needs to sell the inventory you provided as collateral, they need to make sure they get their money back. Therefore, the bank assumes they won’t be able to sell the inventory at market value. Most lenders base loans on liquidation or wholesale values rather than retail.
Benefits of Inventory Financing
Inventory financing can be a less expensive way for businesses to receive funding. There are many benefits of inventory financing for businesses. Ensuring you have plenty of inventory can help grow your business, increase revenue, and expand customer selection. In addition, inventory financing can help companies make sure they never miss out on a sale. If you are preparing for seasonal sales you may need to stock up on inventory before the holidays or your busy season. Busy seasons can vary depending on the type of business you own. If you need to stock up on inventory but don’t have the cash available you can use an inventory loan. Inventory loans can also help improve cash flow for companies. Business owners with credit challenges may benefit from inventory financing. Since you are providing collateral and the lender knows they will get their money back whether you pay or not, your credit history should have less impact on approval decisions. For growing businesses or business owners with credit challenges, secured loans or inventory loans can help establish credit. This can open up more opportunities and more financing options in the future.
While inventory financing has a long list of benefits for most businesses, it’s not a perfect solution for everyone. Business owners should evaluate the benefits and drawbacks as it relates to their company. If your company is struggling to sell products now, using an inventory loan may just create more stress and problems. However, if your company is selling products but needs more inventory to grow sales, using an inventory loan may help you achieve your growth goals. Business owners should take into consideration that regardless of how you borrow money, it costs more than paying cash. If profit margins are tight, inventory financing may cause you to operate at a loss or lower profit margin which could lead to future problems. You should take extra costs into consideration and factor them into your business plan. In some cases, inventory loans may have additional fees as well. Kickfurther offers extremely low fees and is up to 30% cheaper than other options.
Requirements for obtaining a loan with collateral
Requirements for obtaining a loan with collateral can vary depending on the type of loan and the lender. Requirements can also vary depending on how much you need to borrow. Some lenders may offer a secured line of credit while others may offer an inventory loan. They are both similar but a line of credit is more like a credit card. A line of credit provides companies with a revolving line of credit that allows them to access a certain amount of capital. Kickfurther has some basic requirements and a vetting process designed to qualify candidates to help ensure they will be successful. If you do not have proven sales or at least 6 months in business, Kickfurther may not be the best option for you. Some of the general requirements for obtaining an inventory loan with Kickfurther include. . .
- Must sell physical products
- Operates in the US
- Business revenue of $150,000+
- Proven sales
- Legal business entity
- Decent credit score and history (co-applicants welcome)
How does Kickfurther help businesses secure financing using inventory as collateral?
Kickfurther is the world’s first online inventory financing platform that enables companies to access funds that they are unable to acquire through traditional sources. We connect brands to a community of eager buyers who help fund the inventory on consignment and give brands the flexibility to pay that back as they receive cash from their sales. This alleviates the cash-flow pinch that lenders can cause without customized repayment schedules allowing your brand to scale quickly without impeding your ability to maintain inventory.
Key Takeaway
In conclusion, inventory loans secured by collateral can benefit businesses and customers. While traditional banks and credit unions may offer inventory loans, there may be alternative options available that are more cost effective. Finding an affordable inventory loan can be a smart financing option that is usually cheaper than using a credit card. In addition, paying off a secured loan can help establish business credit, thus allowing you to qualify for an unsecured loan in the future.
