Inventory is the lifeblood of retail. Here's how to finance it:
Best Options for Inventory:
1. Business Line of Credit Best overall for inventory:
- ●Draw when ordering
- ●Repay as inventory sells
- ●Revolving—use again and again
- ●Only pay interest on what you use
2. Inventory Financing Specialized option:
- ●Inventory itself as collateral
- ●Revolving credit based on inventory value
- ●Common in retail, wholesale, distribution
3. Merchant Cash Advance For quick inventory needs:
- ●Fast funding (same day)
- ●Good for seasonal stock-up
- ●Higher cost but accessible
4. Trade Credit From suppliers:
- ●Net-30, 60, or 90 terms
- ●No interest if paid on time
- ●Build with payment history
- ●Ask vendors for extended terms
Seasonal Inventory Strategy:
Pre-Season:
- ●Apply for funding after last peak (strong statements)
- ●Draw for inventory 60-90 days before peak
- ●Stock early for best selection
During Peak:
- ●Repay from strong sales
- ●Don't take new debt during peak
- ●Build reserves
Post-Season:
- ●Clear excess inventory
- ●Pay down lines
- ●Prepare for next cycle
Calculating Inventory ROI: Before financing inventory, calculate:
- ●Gross margin on inventory
- ●Inventory turn rate
- ●Cost of financing
Example:
- ●$100K inventory at 45% margin = $45K gross profit
- ●Financing cost (MCA): $25K
- ●Net benefit: $20K
If your margin exceeds financing cost, it makes sense.