Startup Inventory Financing - The Definitive Guide
Are you seeking to secure a reliable funding source for your fledgling company?
The challenges you face as a merchant of a storefront are diverse and extend beyond just the initial launch and ongoing maintenance of your business.
On top of that, due to their rigorous application and liquidity requirements, conventional bank loans make this nearly impossible.
Furthermore, the vast majority of new businesses will not qualify for this sort of financing.
Fortunately, many options besides bank loans can help you grow your business with fewer restrictions, such as inventory financing loans.
In this article, we'll define startup inventory financing, discuss the various forms this financing takes, and outline the steps necessary to secure one.
Startup inventory financing is a type of funding tailored to the industry's unique needs, like inventory purchases and cash flow management.
Access to this funding ensures that stores always have enough stock, which is essential for sustaining a successful business.
This type of financing is common among startups because it aids in financial management and keeps businesses competitive.
There are several types of inventory financing available to businesses. They vary depending on your company necessities.
Here are the most common types of inventory financing:
Every business has distinct stock requirements.
For instance, after receiving a sizable order from a client, a small company may need inventory financing to cover the cost of purchasing the necessary supplies.
As a result, getting a loan to pay for inventory is a good idea - your business can start blooming if you stock up or prepare for increased demand.
This is why inventory financing is highly beneficial to product-based companies such as:
Consider the following benefits of startup inventory financing if you're on the fence about taking the plunge:
📌Gives small businesses quick access to funds for inventory and supplies.
📌Allows businesses to make payments over time, which improves cash flow and reduces administrative burden.
📌Offers more manageable interest rates than bank loans, making it easier on small businesses bottom lines.
📌Requires no collateral, unlike traditional bank loans. It's a good option for businesses without collateral.
📌It benefits a company's liquidity, enabling it to endure and thrive in the marketplace.
Now that we are familiar with basic information regarding startup inventory financing, let’s find out how to secure that loan.
The 4-steps-process to obtain this type of loan are outlined below.
You should be aware that this process may differ slightly from lender to lender, but that in general the steps are fairly consistent.
We have only touched on the various inventory financing options available to you.
However, you should be aware that lending institutions don’t need to supply every possible form of financing in their proposal.
To illustrate this point, let's look at Myos, an asset-based finance provider that is facilitating sellers around the world in their pursuit of expansion.
Myos offers 3 different types of financing:
💰Purchase finance — Myos makes a down payment and takes possession of the merchandise before the retailer even has it in stock. As soon as the order is received at the warehouse, the retailer can pay for the part of the order to release the goods for sale.
💰Stock finance — The store has one product category that it can put up as collateral for Myos to use toward the purchase of a different category. Once the customer has paid the initial fee to unlock the product, the store may continue to sell it.
💰Cross finance — The product was sold, but the merchant has not yet received payment from the buyer. So, the current stock is used as collateral for a loan so they can place a new order. Once they get paid by their first customer for the first shipment of goods, they can pay the Myos back.
Once you establish that the lending institution provides the type of financing your business requires, you can move on to Step #2 — determining your eligibility to apply.
As we discussed, various funding companies may specify varying criteria for qualifying you for the inventory financing loan you seek.
While the paperwork for startup inventory financing is less onerous, lenders will still want to make sure they're giving their money to a well-run business.
It may come as a surprise, but the neatness with which you keep track of your inventory can be a valuable indicator of how well your company is run.
Therefore, you may be required to provide the following to lender:
For instance, in order for Myos to consider your loan application, you need to meet the following criteria:
✔️Your business has a UK or EU registration.
✔️Your business has been working for at least 6 months.
✔️Your business is selling online for at least 50 days(e.g., on Amazon, eBay, online shop, etc.).
✔️Your products have a shelf life of at least a year.
✔️The least price for a product is 5 EUR (EU) or 5 GBP (UK).
✔️Your products are available for sale.
✔️Your project excludes COVID-19, branded watches, ammunition, and weapons.
If your ecommerce business meets the mentioned criteria you're all set for a step #3.
The lender for inventory financing must thoroughly investigate your business. That means you'll need to gather your financial records that detail your assets, liabilities, profits, and losses.
In addition, having a plan that secures the company's future growth is good.
Here is a list of the financial paperwork you might want to include with your application:
📌Profit & Loss Statements — The P&L (profit and loss) shows your company's profitability to the loan officer. It shows a company's income, expenses, and net gain or loss over time. A lender needs to know if you have enough money after paying your monthly, quarterly, or annual bills.
📌Balance Sheets — The loan officer will look at your company's balance sheets for the current year, the prior two years, and the two years before that.
📌Sales Forecast — When deciding whether to offer inventory financing, lenders consider your company's past performance and potential for the future. Therefore, make sure your sales forecast is accurate and upbeat.
📌Business Bank Statements — Your business's bank or account statements provide an overview of your financial activities over time. Lenders require evidence that the funds are yours (this includes only three months' worth of bank statements).
📌Inventory List and Management records — Lenders will demand evidence of your ability to handle inventory-related files and documents. In addition, they can request the turnover and unsold percentage of your inventory. Finally, in the event of a default, the lender will want to know how you will manage a new inventory.
📌Business Tax Returns — Tax returns confirm revenue and credit worthiness. Lenders can tell if you're likely to default on your debts based on your returns over the last two to three years.
Myos, for instance, doesn’t require this type of documentation for the application. This is due to the fact that they leverage AI to check the products based on open data.
All you need is to fulfill AISN (Amazon standard identification number) and EAN (European Article Number) data.
Then, using AI and ML in their algorithm, Myos can assess the product data and establish the financing amount without conducting additional credit checks on the seller.
In addition, you can avoid any personal risks or guarantees by using the product itself as collateral.
Now that you have everything you need, you are one step away from getting the loan and securing the stable cash flow for your business.
Now, once again, requirements for applying for startup inventory loans vary between financial institutions.
However, most of them will need you to provide them with some fundamentals, like
As soon as you submit your application, the lending company will evaluate it and make a proposal, which you can then accept or reject.
Here is how the application form for Myos looks like:
Myos, for instance, offers from £10k to £2m funding for operating expenses, is available from Myos, with interest rates between 1% and 3% per month. Within the first 24 months, repayment terms are entirely flexible.
What's more, It usually takes a day or two for your project request to be reviewed.
You can see how simple it is to secure funding for inventory at a startup.
We have listed the top asset-based companies in this article if you are still looking for a trustworthy funding partner to assist you with your financial plan.
But if you're open to suggestions, Myos could be a good option for you to have a steady stream of cash on hand to help grow your business.
Our partners already enjoy the following benefits:
🥇No personal guarantees and income verifications are required.
🥈You can use collateral in the form of goods.
🥉You can pay off the loan whenever you want.
🏅There are no annuities attached to the loan (the customer chooses when to repay and pays a monthly fee on the outstanding loan).
🥇We will evaluate your products using AI.
🥈Choose between 3 different types of funding: Purchase, Stock or Cross finance.
🥉Get a loan between £10,000-£2,500,000.
🏅Apply in 3 easy steps.
🥇Get your money fast (24h-72h).
🎯Your monetary assets are secure.
🎯The only security we require is your merchandise.
🎯You can repay the loan by selling the items or using another income source.
🎯If financing isn't repaid, collateralized goods are sold, reducing our risk.
🎯Your company's secrets are safe with us because we don't interact with your supplier.
Sign up with Myos to effortlessly manage and grow your startup business today.
3 Tips to Start an Ecommerce Business with No Money in 2023
7 Best Asset-Based Finance Companies To Consider in 2023
Asset-Based Lending vs Bank Financing: Which Is Better For You?