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Morewood Funding Blog

  • Writer's pictureHoward Abrahams

Turning Your Inventory into Cash



An Inventory Line of Credit is a form of financing that allows businesses to use inventory as collateral to obtain a revolving line of credit. Many businesses have significant capital tied up in inventory and therefore, this type of loan can be an effective method of accessing that capital and using it to grow your business.


An inventory lender will typically advance 40%-60% (but sometimes can be as high as 100%)) of the value of the inventory’s cost. As the business sells inventory, it will pay down the principal and interest of the line of credit according to a pre-determined rate. Then, as the business restocks inventory, the lender will advance money again according to the original advance rate.


Let’s take a look at the example of a business with $1,000,000 (purchase cost) in bicycles in inventory. The Lender will determine an advance rate (say 50%) of the net orderly liquidation value of the inventory. This is the value of the inventory if sold in an orderly fashion (i.e., in a reasonable period of time), net of Lender’s expenses. Continuing with the example, if the business sells 100% of the bicycles, then the business will pay down 100% of the loan since they have depleted all of their inventory. If less than 100% of the bicycles are sold, the loan will be paid down proportionately. When the business replenishes inventory by acquiring more bicycles, then according to the terms of the line of credit, the business will be eligible to borrow again from the lender on the basis of the pre-determined advance rate.


Benefits of an inventory line of credit:

  • Frees up cash tied up in inventory

  • Viable option for businesses unable to obtain financing from traditional sources

  • Proceeds of the loan can be used in an unrestricted fashion

  • Can be used as a bridge to more permanent financing

  • Lender more concerned with the value of the inventory than personal or business credit quality

  • Inventory Line of Credit does not dilute owner’s equity in the business.


Common industries where an inventory line of credit can be helpful:

  • Ecommerce

  • Manufacturing

  • Distribution

  • Retail

  • Any industry where the business has inventory and, importantly - maintains control over the inventory.


Morewood Funding helps business and commercial real estate investors/owners access capital. If you would like to further discuss how an inventory line of credit or other loan types might benefit your business, it will be our pleasure to bring our connections and experience to bear on your behalf.


Please call or email:

Howard Abrahams

President, Morewood Funding, LLC 917 561 7074

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