What types of inventory financing are available?

There are two main types of inventory financing that banks or Non-banking Financial Companies (NBFCs) provide to businesses based on their operations and needs:

1. Inventory Loans (Term Loans)

• Loan providers issue a fixed loan amount based on total inventory value as collateral.
• Businesses agree to repay the lump sum amount via fixed monthly instalments.
• Repayment schedules can align with inventory turnover rates.
• Failure to repay can allow financial institutions to seize inventory collateral.

2. Inventory Lines of Credit (Revolving Credit Facilities)

• Lending institutions set up revolving credit lines tied to inventory values.
• Businesses can continually draw down and repay the line as inventory needs fluctuate.
• They are useful for seasonal inventory spikes or supply chain uncertainties.
• They are typically more flexible than term loans but costlier with account maintenance fees.

The option businesses choose depends on factors like:

• Cost of financing
• Inventory volatility
• Production cycles
• Revenue stability

In both cases, inventory serves as collateral that banks or NBFCs can possess if repayment issues emerge. Interest rates, terms, and loan provider fees typically vary.