21 Oct Use Nonbank Financing for Industrial Businesses to Expand Inventory
Whether you’re trying to keep up with customer demand, protect yourself from supply chain problems, launch a new product line, or reduce costs through bulk ordering raw materials, you need funds to expand your inventory.
You may be looking for a more flexible, faster way to finance your growth than the rigid traditional loans from banks. That’s where alternative nonbank financing allows industrial businesses to move forward without being tied to conventional lending criteria.
Why Consider Alternative Financing Over Traditional Banks
A bank isn’t agile or quick enough for an industrial business growing quickly, taking advantage of a limited-time opportunity, or operating with uneven cash flow cycles. They usually require years of operating history, pristine credit scores, strong balance sheets, and extensive documentation to consider your application. They also rely on a rigorous and slow underwriting process. You can wait months to secure funding.
Unlike banks, nontraditional lenders typically have a higher risk tolerance and flexible qualifications. They base lending decisions on your business’s overall financial health, so industrial companies turned away by banks can still qualify with alternative lenders.
Nonbank financing companies also provide quick and agile loan products. Many of these lenders will provide funding in two weeks or less. In industrial inventory, alternative financing allows you to secure the materials or goods you need quickly while protecting your cash reserves and equity.
What Lenders Look for in Inventory Deals
Even though non-bank financing is more flexible, providers still check that your business can repay the borrowed capital. To increase your chances of approval, be transparent about your growth plans and organize these key data points in advance:
- Inventory Turnover Rate: A quick and predictable sales rate for your products signals strong demand and efficient operations.
- Gross Profit Margins: Higher margins on your inventory create a larger buffer for repayment.
- Sales Forecasts: Lenders want justification for expanding your inventory. They may want to see purchase orders, contracts, or sales history to support your growth plan.
- Supplier Terms: Vendor payments impact your working capital, so showing that you have favorable payment terms with your suppliers increases your available capital.
- Operations Track Record: Even if your company is younger, demonstrating a clear operational structure and strategy in your business builds lender confidence.
Nontraditional Loans for Industrial Inventory
Alternative financing often extends beyond buying more materials. With borrowed capital, you can shorten delivery timelines, take advantage of discounts from suppliers, reduce reliance on emergency funding, and gain a strategic edge on your competitors. Here are a few nontraditional loans for industrial companies that work well for inventory needs.
Asset-Based Lending (ABL)
You borrow a lump sum against the value of your existing business assets, such as real estate, accounts receivable, equipment, and inventory. Business asset loans work great for industrial businesses with valuable machinery and a stock of raw materials.
Purchase Order (PO) Financing
When you don’t have the inventory to complete your confirmed orders, lenders agree to pay suppliers for the products you need to produce for your customer. Small industrial businesses can use this loan to protect their cash reserves and boost sales.
Inventory Financing
Lenders offer this funding option specifically for purchasing new inventory. The purchased materials and supplies secure either a line of credit or a term loan. If you face seasonal inventory changes, like clothing manufacturers and food processing companies, inventory financing can help keep the right supplies in stock.
Revenue-Based Financing
You borrow a lump sum and repay the loan using a percentage of your monthly income. This nontraditional loan allows industrial businesses with strong sales and consistent income to access capital with flexible terms.
Merchant Cash Advances (MCAs)
MCAs offer short-term capital with repayment through a percentage of your credit and debit card sales. Though borrowing costs are typically higher than other loans, industrial businesses with significant card sales could use an MCA to quickly capitalize on discounts from vendors or seasonal demand.
How to Choose Nonbank Financing for Your Needs
Choosing alternative financing for your business means picking a lender and a financial product. Start with a clear goal for your working capital and inventory expansion, and work backward to what you most need from your loan and lender. Use the following traits of alternative lenders and nontraditional loans to guide your decision.
Lender Reputation
You want a trustworthy partner who understands your business beyond your financial documents. Look for lenders with experience in funding industrial companies and positive customer reviews from businesses like yours.
Support and Transparency
Some alternative lenders act like financial advisors with high levels of personal interaction and continued support. All reputable financiers will clearly explain their fees, timelines, and requirements up front. Watch out for scammers asking for payment before you’ve secured funding or avoiding key details about costs.
Regional Knowledge
Your business faces different challenges depending on your location. For example, if you want to expand your inventory to respond to new initiatives in Illinois, Chicagoland nonbank financing for industrial companies will factor that into your terms when a national alternative lender might not. Work with local lenders or financiers with regional knowledge to best meet your needs.
Speed vs. Cost
You can secure funds through nontraditional financing quickly, within 14 days, and as quickly as 24 hours. However, faster funding often comes with higher rates. To choose the right financing options, consider how quickly you need working capital for inventory purchases and how much you’re willing to pay in borrowing costs.
Term Structure
Alternative financing usually offers short-term loans, between three and 18 months. The best option will align your repayment to the return on your investment in inventory. Choose a matching financing product or ask your lender to adjust the terms to your needs.
Repayment Methods
Flexible repayment is a defining feature of nonbank loan options. You can choose from fixed monthly payments, revenue-based payments, and percentages of card sales, to name a few. Consider which method best suits your cash flow and business model to pick the right loan.
Opportunity to Grow
As banks tighten their lending criteria and make it hard for industrial businesses to qualify for funding, you can feel stuck. But instead of getting bogged down in paperwork or waiting months for approval, alternative non-bank lenders offer financing that meets your business needs.
With flexible and speedy financing available to industrial companies, nontraditional lenders give you the opportunity to move forward and grow your business.