Get the funds you need to purchase expensive inventory for your business.
If your business specialises in selling high-value items such as cars or electronics, finding the funds needed to purchase those items can place a big strain on cash flow. Floorplan finance is designed to provide the funds you need to buy inventory for your business, helping you put products on the shelves without making a significant dent in your day-to-day cash flow.
So, is floorplan finance right for your business? Let’s take a closer look.
How does floorplan finance work?
Floorplan finance, which is sometimes also known as inventory finance, is designed to help retailers purchase high-value items for resale to customers. This type of financing provides a revolving line of credit, providing access to the funds you need to purchase inventory for your business and stock the shelves.
The way it works is quite simple: the lender pays the manufacturer or distributor for the stock you purchase. Then when an item is sold, you repay the appropriate amount of floorplan finance to the lender. This ensures that you don’t have too much working capital tied up in your business inventory, leaving other funds free to provide the cash flow your business needs from one day to the next.
What can you use floorplan finance for?
Floorplan finance allows you to continue to help your business grow without tying up all your funds to purchase inventory. It allows you to purchase the items you need to stock the shelves and get customers through the door, but at the same time ensures that you have enough cash flow to manage and expand your business.
It’s also an extremely useful form of financing for seasonal business or those that experience fluctuating cash flow. For example, in the lead-up to Christmas, retailers need to purchase extra stock to cope with the anticipated increase in sales. Many smaller retailers simply don’t have enough cash available to purchase the necessary stock, so inventory finance provides the funds they need to maximise sales during this busy shopping period.
How to compare floorplan finance loans
There are several important factors you’ll need to consider when comparing floorplan finance loans for your business, including:
- Interest rates. The interest rate that applies to your line of credit will impact the total cost of repaying the money you borrow, so compare interest rates across lenders to find the best value for money.
- Fees. Floorplan finance fees can also affect the total cost of financing. Remember to check for upfront charges such as application or establishment fees, as well as any ongoing fees that apply to the business loan facility.
- Secured or unsecured. Most forms of inventory finance are secured directly to the inventory items you purchase and then re-sell. However, unsecured financing is also available in some cases. Make sure you compare both options to decide whether a secured or unsecured loan is right for you.
- Loan amount. Check with each lender to find out the maximum amount you’ll be allowed to borrow.
- Repayment flexibility. Check how long you have to repay the funds you borrow after items of inventory are sold. When you sell stock purchased with floorplan financing, you either repay the debt or purchase more stock. The lender will also conduct periodic stock checks. If you have insufficient stock to secure the funds you have borrowed you’ll have to repay some of the finance.
- Type of inventory. Inventory finance can be used to purchase a wide range of high-value items, from cars and motorcycles to electronics and even agricultural equipment. Check which types of inventory your lender will allow you to finance.
Is there anything to avoid?
There are a few key risks you should be aware of before applying for inventory financing. Consumer appetites can be quite fickle, so items that are in high demand now may quickly go out of fashion. Business sales could take an unexpected downturn, while there’s also a risk that items could be stolen or damaged. When any of the above happens, you could be left with a loan that you may struggle to repay.
Speaking more generally, it’s always important to be careful not to get in over your head. Never borrow more than you can comfortably afford to repay, and remember to check the fine print to familiarise yourself with all the fees and charges that will apply to your loan facility.
Alternatives to floorplan finance
FAQs
How is the interest rate for inventory finance calculated?
The interest rate is calculated based on market conditions and the financial performance of your business.
