Due to the high minimums and interest rates, as well as the lengthy process, loans secured by inventory aren’t the answer for every small business.
So, how else can you get money for inventory? Here are some popular alternatives that you can use:
A term loan is what most people think of when they think of a business loan. You get a lump sum of money that you pay off over a set period with interest.
They will often have lower interest rates than loans secured by inventory, making them a great alternative. They do, however, also have strict qualification minimums that can push many toward other small business loans.
As the name suggests, short-term loans are similar to term loans but with shorter repayment lengths. Instead of having years to pay back your loan, these loans can have terms as short as 3 months.
The shorter repayment terms mean businesses with less than excellent credit can find better chances of approval. Many online lenders offer short-term loans, making it a great inventory financing option for small businesses who need money quickly.
Although there are other options from the Small Business Administration’s 7(a) loan program that can be used to buy inventory, CAPLines stand out.
If you’re looking to buy inventory for a retail store or other small business that has seasonal sales increases, the SBA Seasonal CapLine is for you.
This SBA inventory financing option works as a business line of credit, with a maximum of $5 million. They can be used to purchase inventory to meet the need of an upcoming busy season. Maturity lengths can go up to 10 years, making them a great choice if you prefer a long-term commitment.
As with any SBA loan, they can be difficult to be approved for. If you are, it takes weeks to months to get your money.
Business Line of Credit
If you need inventory financing immediately or don’t have the creditworthiness to be approved by the SBA, you can still receive a business line of credit from alternative lenders.
If you choose to go this route, you can withdraw funding from the line of credit in the future to cover operating costs other than inventory. That versatility could be beneficial for growing small businesses.
The speed and accessibility to funding that online lenders offer makes business lines of credit attractive.
If you go through an online lending marketplace such as Fast Capital 360, you can have one application sent to multiple lenders. This cuts out the time you have to spend filling out applications.
Qualification requirements also are much lower than SBA, bank and inventory loan lenders, opening up doors for businesses with lower credit scores.