What are the requirements to apply for inventory financing?

To apply for inventory financing, businesses need to meet certain key requirements that show they are established and have valuable inventory to offer as collateral. Here are the key requirements to apply for inventory financing:

• An established business: To evaluate past financials, financing against inventory is usually only extended to companies with enough years of operating history. Startups generally do not qualify.
• Active inventory: The business must have a substantial amount of unsold inventory readily available to pledge as collateral for financing. Old, obsolete, damaged or slow-moving items have less collateral value.
• Detailed inventory records: Accurate inventory counts, item descriptions, storage locations, and value per unit must all be meticulously documented. These details allow potential financing providers to value pledged assets properly.
• Financial statements: The business must produce historical and current balance sheets, profit/loss statements, tax returns, and other documentation to provide transparency into overall financial health and back up stated inventory values.
• Business plan: A plan outlining business operations, management, target markets, suppliers, sales forecasts, and other details allows evaluation of the ability to sell existing inventory and pay back financing.
• Personal credit check: For small businesses, lending institutions may review the personal credit profile of the principal owner to assess responsibility and repayment capacity. This can typically also influence the interest rates offered.

Essentially, the requirements aim to prove a well-managed, financially sound business with liquid inventory collateral that can be reasonably expected to generate sales and cash flow that covers repayment of financing. Meeting these requirements results in higher chances and amounts of approval.