Bad Business Credit Financing Inventory

In the world of business, money coins mankind indeed with great deal of power. As in the words of Stephen Covey, a businessman always keeps on doing what he is doing since he is going to keep on getting what he is getting. The businessmen follow the principles of Mr. Winston Churchill, who heralds that success is going from failure to failure without losing enthusiasm.

These business people even though with no credit or bad credit, would never like to turn away from their success path as successes have many fathers, failures have none. For the success of business, finance plays obviously a charismatic role, which enables the business to ladder up to its peak.

What Does Inventory and Inventory financing Mean :

Inventory is defined as a collection of resources owned by a business firm and Inventory financing is a loan provided to a business firm or a manufacturer using its or his inventory as a security against that loan. In other words, the process of obtaining finance for a business with its inventory used as collateral is popularly known as inventory financing primarily by business finance companies or lenders. Inventory loan financing is also referred to be flooring. Mostly, manufacturers of consumer products are provided inventory financing for whom inventory, i.e., collection of resources tends to be a significant percentage of assets. These inventory loans are pledged by unsold inventory. The loan is repaid when the goods are sold and this inventory financing allows the manufacturers to avail loans with the process of purchase and conversion of inventory assets into saleable items. The interest rates by the inventory financing companies to business firms with bad credit on their raw material and finished goods vary depending on the cost and on the inventory type.

Inventory financing is good for the business firms, such as service or knowledge-based firm with a kind of inventory that the financiers feel is to be secured enough as a collateral. Financing with inventory for business firms is advisable in the following situations Firstly, when the goods of these firms are ready to be shipped and the firms are short of finance to obtain supplies for

their next production cycle, secondly with the good turnover of their inventory when they are unable to keep much flow of cash and finally for maintaining high levels of their inventory.

Various Tips to Access Inventory Financing

Business firms do have to maintain good, systematic, computerized information about their inventory, by this way, the lenders will be informed about the status of the inventory, cost issues, etc. The assets should be maintained in good condition such that lenders will be able to have periodic inspections and thorough checking of the inventory, which will induce them to gain confidence about their assets. Overall the firms or borrowers must be careful about buying inventories which enables them to access easy funds with inventory. An up to date business plan, showing that the business is indeed in the upward growth process and also defining their business goals clearly, will help the lenders to have an idea, as to whom they are going to lend. Sometimes, the business

firms may be requested to provide additional form of security as a mortgage, apart from the actual inventory available with the business.

Difficulties Locating Suitable Inventory Financing

Inventory financing is one of the most difficult lending tools to locate and to understand. Whoever is the borrower, maybe a manufacturer, being a retailer or involved in wholesale business, inventory funding is to be financed with equity finance only. Due to high risks of fluctuations in prices and nature of the mobility of the assets, this kind of funding makes the lender difficult to secure the inventory assets. As the inventory financing is provided in conjugation with accounts receivable financing and this is a primary part of the facility, lenders are forced to go away from financing.

Essential Inventory Financing Programs

There are three basic inventory finance models with different variations depending upon the factors that are involved in the business.

The first program allows the lender in such a way that, the lender has complete control over the inventory with the use of a third party warehouse. Under this model, the lenders purchase inventory with their funds and keep them in a third party warehouse. Depending on the lender, the borrower may enjoy the ownership of his inventory or the lender with complete control may be the boss of the inventory acquiring full ownership. This is mainly designed to have enough free flow of cash to pay for the inventory whenever the borrower needs it.

The second category of inventory financing program involves purchase orders. This is most common through which wholesalers and brokers try to facilitate buying and selling and block orders. In this program, an inventory lender can provide finance for the purchase order for a product, which can be easily liquidated from a well established purchaser or for the purchase of the inventory requiring to complete the sale provided that this is directly shipped to the borrowers customer and provided the customer consents to pay the inventory lender directly and in fact, the borrower basically, will not touch the inventory or the payment. Once the inventory lender receives payment, he will deduct the cost of the inventory and the financing costs and forward the margins to the borrower.

Asset-based finance is the third most common inventory program, which enables the lender to claim on all accounts receivable and inventory and all incoming funds for the business are deposited into the asset-based lenders account. Thus, the asset-based lender has complete control over the flow of cash in the business, which helps the business to run effectively. Moreover, this allows the lender to manage the risks involved more effectively and to have a check over the cash coming in and going out.

Thus we have dealt with the various bad credit financing inventories, with respect to the loans that can be provided to the borrower.