Dealer Inventory Financing - CredAvenue

What is Dealer Inventory Financing?

Dealer inventory financing is a short-term, unsecured financing for dealers offered by a bank/finance company. It is an easy credit line or financial solution and is the best alternative to traditional loans. This scheme is usually offered to small and medium-sized retailers or dealers with an extensive inventory. This method of financing is very popular amongst the dealers who have a considerable amount of money tied up to their business inventory.

Different Types of Dealer Inventory Financing

The lenders provide 2 kinds of inventory financing to the dealers. The dealer might choose the option that suits his business operations. The rate of interest & fees charged depends on the lender and the type of business.

  1. Business loans: Also known as Term loans, it is based on the total value of the company’s inventory. It is a regular loan issued by the lender, and the dealer agrees to make fixed payments every month or pay the loan off in full once the inventory is sold. This financing solution is used by dealers when they face immediate cash requirements and want to use their inventory’s resale value to receive funds. It is a one-time loan offered to the dealers.
  2. Inventory Line of Credit: Dealers are provided with regular access to credit as long as the dealer makes regular/periodic payments satisfying the contract’s terms and conditions. This type of financial solution is more popular among the dealers since it can take care of any unforeseen expenses that may arise after the dealer has already received the funds from the loan. 

 

How Does Dealer Inventory Financing Work?

Dealership businesses with inventory can pledge their inventories as collateral to obtain funding. Dealer Inventory financing is a financial arrangement where two parties – the dealer and the lender – put their deal/contract in writing with an inventory financing agreement. Dealer inventory financing is mostly used by borrowers such as dealers & manufacturers to receive funds and meet their expenses. To avail of this benefit, a dealer provides the business inventory as collateral to obtain funds and meet the expenses of a temporary monetary crisis. 

Example: Suppose a car dealer wants to increase his inventory and buy more cars due to an anticipated increase in new car sales. In that case, the dealer must purchase the inventory from the car manufacturer. The dealer then obtains a loan from a lender/financial institution based on the value of the cars. When the car/vehicle is sold off, the dealer can then pay off the loan portion related to that car and purchase more inventories to sell. 

 

How Can a Dealer Avail of Inventory Financing?

Measures that the dealer should ensure to avail of loan via dealer inventory financing:

  • Through a well-organized inventory management 
  • Protecting products against the elements of nature 
  • Being prepared for a visit by the lender, once in a quarter or a year
  • Having accurate sales records 
  • Avoiding unnecessary large inventory 

 

Benefits of Dealer Inventory Financing

  • Enables Quick Upfront Cash – As the application procedure for this scheme is more straightforward than other financial plans, the loan is quickly approved, and the funds can be used in case there is an emergency.
  • Improves Cash Flow – Such financing solutions allow dealers to use the money otherwise locked due to the inventory or other items. It will enable dealers to improve their cash flow, buy new merchandise, or pay the employees.
  • Leverages Company Sales – Additional money available can improve the dealership’s sales or expand the current business.
  • Repays Existing Debt – The dealer can use the additional funds to repay the existing working capitals debts from unorganised parties, if any.
  • Prepares for Busy Seasons – For a seasonal business, the loan amount from this scheme can help accumulate the company inventory when the business is slow and prepare in advance for the busy seasons.
  • Best Alternative to Traditional Loans – Dealer inventory financing is best for small to medium-sized dealers who cannot otherwise avail of a regular bank loan. Also, smaller business dealers don’t have to put up their personal or business assets to secure financing. 

 

Why is YubiFlow Platform Right for You?

Dealer inventory financing can prove to be an incredibly excellent tool for your dealership business and can benefit tremendously. YubiFlow is an end-to-end Trade and Supply Chain platform, by CredAvevue. It is the most advanced Trade and Supply Chain Finance (SCF) platform having Dealer/Vendor Finance Solutions. If you are a dealer and considering inventory financing through a lending partner, you may reach out to the CreadAvenue platform to explore the financing options that may best fit your business.

 

Key Takeaways

Inventory financing is credit obtained by dealers by keeping inventory as collateral to pay for products not intended for immediate sale. Dealers rely on inventory financing to keep cash flow steady, update product lines, increase inventory supplies, and respond to high demand. This method of financing is quite popular among dealers who have a considerable amount of cash tied up to their business inventory.

 

FAQs

Q: What is essential in dealer inventory financing?

A: In dealer inventory financing, a dealer’s industry, the market value of inventory, credit history, and financial situation plays an integral part in the terms offered by the lender.

 

Q: Why should dealers maintain their inventories properly?

A: Inventory, one of the most critical assets of a business, should be well maintained. It is also necessary to learn about the key attributes of dealer inventory financing before deciding to avail of this financing solution.

 

Q: When should a dealer consider inventory financing?

A: A dealer whose inventory is selling well and needs more funds to keep selling may consider inventory financing. But if your inventory is out of date or not selling, it may not be wise to attempt a dealer inventory financing, and you may not find a willing lender as well.

 

Q: What is the primary benefit of dealer inventory financing?

A: The primary or main benefit of dealer inventory financing is that it improves cash flow for the dealer that can help pay off debts in any crisis.

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