Inventory Financing: Short term fund can also be raised by pledging inventory as collateral, using floating collateral lines trust receipts, terminal warehouse receipts, field warehouse receipts, and chattel mortgages. It is a form of asset-based lending that allows businesses to use inventory as collateral to obtain a revolving line of credit. It is mainly helpful for businesses that must pay their suppliers in a shorter period than it takes them to sell their inventory to customers. This type of financing is valuable if you are not capable to get higher credit terms from suppliers/vendors, or if they are asking for faster payments.
Inventory Financing is an admired financing alternative for small to medium-sized retailers or wholesalers. Factors influencing the use of inventory as security: There are many factors influencing the use of inventory as security. Some are given below –
- Stability of market price;
- Nature of pawn;
- Borrower’s status;
- Selling cost of inventory.
Some advantages include:
- Allows you to leverage inventory
- Allows your business to accumulate inventory
- Easier to get than conventional financing.