Did you know that almost 65% of the small and medium businesses in India have problems with the working capital because of the stock holding? The inventory in your warehouse can literally open up instant cash via loan against inventory. This kind of loan allows you to use the current inventory as collateral to borrow funds so that you do not have to sell your stocks to keep your cash flow. We will take you through the step by step process of securing a loan against inventory in this blog and the process is easy, transparent and stress free.
What is Loan Against Inventory?
Loan against inventory is an inventory loan in which organizations can take loans against the current stock or inventory. It is an intelligent means of small and medium enterprises (SMEs) to enhance their cash flow without having to sell their products. This form of inventory financing in India comes in particularly handy to retailers, wholesalers and manufacturers who require immediate capital but have their capital locked up in unsold goods.
With a loan for inventory purchase, companies can restock, manage seasonal demands, or scale operations. Lenders evaluate the inventory value and give a loan against the value of inventory. This implies that your inventory is an asset rather than the burden.
This form of financing is also referred to as a loan secured by inventory, and it is the most suitable form of financing that a business may seek when it wants short term and flexible credit. Many lenders offer inventory loans for small businesses, helping them grow without taking on huge risks or selling off equity.
Which are the Types of Inventory Financing in India?
- Inventory Loan: An inventory loan is a business loan in which companies can take loans based on their inventory such as raw materials or finished products as security. This assists in keeping the cash flow without making sales of the stock.
- Loan for Inventory Purchase: A loan for inventory purchase is used to replenish inventory during the busy season of small and medium sized businesses. It facilitates mass purchasing and improved prices with suppliers.
- Loan Secured by Inventory: Under this kind your unsold goods serve as security. The loan secured by inventory enables you to obtain the working capital with regard to the value of the existing stock.
- Warehouse Receipt Financing: This is one of the popular types of inventory financing in India where a business can obtain finance by providing warehouse receipts which are evidence of goods deposited. It is typical of agriculture and manufacturing.
- Inventory Line of Credit to Small Business: This option is meant to be a flexible loan that provides inventory loans to small businesses in the form of a revolving line of credit. It is perfect to deal with the seasonal demands or any sudden restocking requirement.
What are Features of Inventory Financing in India?
- You can avail an asset-backed loan by submitting inventory as collateral
- The loan amount depends on the percentage of the value of inventory set by the lender
- The owner shall not sell the products immediately; it is a loan against them.
- A type of Revolving Line of Credit and Secured Business Loan requires inventory as collateral.
- Percentage and Interest Rate offered shall vary from lender to lender
- Turn-around time for stock or inventory conversion into cash is flexible
- Helps in cash flow enhancement and improved liquidity by keeping stock assets intact
- The percentage range for loan amount against inventory is generally between 50%-90% of its value
- The life of the inventory is linked with the type of short-term credit and repayment of the loan.
- Preferred by smaller privately-owned businesses, SMEs, retailers, and wholesalers
What are the Benefits of a Loan Against Inventory?
- Locked up funds in inventory unlock by Inventory Finance.
- Helps you to buy and accumulate Inventory at a low cost and maintain liquidity.
- Easy EMI repayment.
- Quick days processing.
- Up- to 90% Funding on the value of inventory.
What are the Eligibility Criteria for Loan Against Inventory?
The eligibility criteria for loan against inventory is explained below:
- The borrower must be at least 18 years of age
- The applicant should be an Indian citizen
- Minimum Turnover 30 Lakhs per annum
- Business must be operating at the same place for the last 1 year
- CIBIL score must be above 750.
- The applicant must not have any credit default history with any bank/NBFC’ s.
What are the Documents Required for the Loan Against Inventory?
- Firstly, Applicant’s KYC Documents – PAN Card, Passport, Aadhaar card, Voter’s ID card, Electricity Bill, Water bill, Driving License
- Business Address Proof – Ownership agreement or Rent agreement of business premises, GST Registration, Business License.
- 12-month Bank Statement.
- 2 years ITRs with Balance Sheet and P&L.
- GST returns for 1 year (If available).
- Cancelled Cheque.
- Copy of inventory invoices.
- Collateral documents.
- Stock valuation report
- Collateral Documents
How can Finline Assist you to Create the Project Report for Bank Loan?
If you’re running a business and have inventory sitting in your warehouse, don’t let it go to waste. A loan against inventory will enable you to convert your inventory to working capital and keep your business on the move-without having to sell your own assets. It is a clever method of cash management in case of seasonal downturns or expansions.
And in case you are going to apply, remember this: a project report is essential to the granting of loans. That is where Finline comes in. Finline is an user-friendly online platform that enables you to make a bank ready project report within 10 minutes and in your own language. All the banks and financial institutions in India accept their reports. Therefore, in case you intend to apply for a loan against inventory, it is best to begin by preparing an effective business report using Finline.
Click now to create your project report with Finline.