Inventory loans, sometimes referred to as “flooring”, uses current inventory on hand as collateral to secure funding. These loans often have better interest rates than other funding options because they are collateralized and provide the lending agency a more secure position. These types of loans are useful for distributors and retailers that need inventory on hand for immediate sales and need more than 30 day terms to pay for the product. Inventory loans allow businesses to increase their inventory, or take out a loan based on current inventory numbers.
Inventory loans are a good short-term funding source for growing businesses that maintain ready to sell inventory and aren’t able to secure traditional funding from their bank. Term lengths are typically one year or less, so a business must have regular turn-over of inventory in order to repay the loan on time. This type of loan is not recommended for companies expecting to hold inventory for longer durations.