Loan against Stock & Inventory
Inventory in any business is an asset. The accounting term “inventory” refers to goods or products available for sale and raw materials. It may also be referred to as all goods, items, products, produce, stock, and materials kept by business owners to make a profit by selling them.
What is Inventory Financing?
The inventory takes time to convert back to cash, and hence it locks a large part of working capital in the form of stocks. A loan against unsold stocks and inventory helps a dealer to maintain big stocks at the same time it maintains the required liquidity in the working capital.
The approval of your loan against inventory in India relies heavily on the quality of inventory handling for a realistic appraisal of your needs. Management of inventory is the primary factor that influences a lender to fulfil the credit needs of the borrower.
The bank values the inventory and grants a loan based on the value of the business inventory. The percentage set and the interest rate offered shall vary from bank to bank and depend on the volume of inventory. Inventory here serves as a type of collateral for the loan, helps a dealer to expand his business, and purchases inventory from retailers, traders, manufacturers, or distributors making it a secured business loan.
Features of Inventory Financing
- 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 Stock and 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 Loans against Stock and inventory?
- 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/NBFCs’ s.
What are the documents required for the Loan against Stock and inventory?
- 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
Types of Inventory Financing
- Inventory Loan: It is simply a loan based on the value of the business inventory, wherein the loan amount can be availed and used at once from the lender
- Inventory Line of Credit: It is a credit limit sanctioned by the lender in which the borrower can withdraw cash, as many times depending upon the requirement but not beyond the total sanctioned limit. Only the availed amount from the total sanctioned limit shall incur the interest rate.
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