What is Inventory Financing?
Inventory Financing is an asset-backed loan facility that can be availed on the value of some or all of business’s inventory or stock. There is a percentage set by the lender or financial institution on which loan is granted, based on the business inventory’s value. The percentage set and the interest rate offered shall vary from bank to bank and depend on the volume of inventory. Inventory here serves as a type of collateral for the loan, making it a secured business loan. This type of financial facility is availed by entrepreneurs or businesses that own and manage large quantities of inventory. In some special cases, Inventory Financing is itself used to purchase inventory by retailers, traders, manufacturers or distributors.
Eligibility Criteria of Inventory Financing
- Minimum age of the borrower should be 18 years
- Minimum 1 year of business existence, operating from the same location
- Applicant should be Indian citizen with no credit default history
- Good credit score is an added advantage
- Minimum annual turnover, as decided by the lender
The following entities are eligible to avail Inventory Funding or Loan against inventory:
- Traders, Retailers, Manufacturers, Distributors, Suppliers, B2B buyers, etc.
Documents Required for Inventory Financing
- Filled application form
- Passport-sized Photographs
- KYC documents of partners, co-applicants or promoters
- Business PAN card along with GST and Sales Tax registration
- Last 1 years’ bank statement
- Last 1 years’ balance sheet and audited P&L account statement
- Last 1 years’ ITR and Sales tax returns, if applicable
- Company registration certificate
- Documents with details of inventory as collateral, with invoices
- Income proof with financials
- Business address proof
Types of Inventory Financing
Depending on the nature of the business and its products, there are 2 types of financial schemes using an inventory that a business can apply for:
This type of financing solution is applicable when a business is facing immediate cash requirements and wants to use the resale value of its inventory to receive funds. Inventory loan is a one-time loan offered to borrowers.
Inventory Line of Credit
The Inventory Line of Credit is more popular among businesses since it can be used to take care of any unforeseen expenses that arise after the borrower has already received the funds from the loan. In this financial plan, the lender offers extra money to the borrower at an ongoing basis whenever there is a requirement.