Loan against Stock and Inventory

Inventory in any firm is an asset. The accounting phrase “inventory” refers to items or products that are available for sale, as well as raw materials. It can also refer to all of the goods, items, products, produce, stock, and materials that business owners keep in order to benefit from their sale.

What is Inventory Financing?

Inventory takes time to convert back to cash, therefore it locks up a significant amount of working capital in the form of stocks. A loan against unsold stocks and inventory allows a dealer to keep large amounts of inventory while also maintaining the necessary liquidity in working capital.

The acceptance of your loan against inventory in India is strongly dependent on the quality of inventory handling for a realistic assessment of your requirements. Inventory management is the major factor influencing a lender to meet the borrower’s credit needs.

The bank assesses the business inventory and makes a loan based on its value. The percentage specified and the interest rate offered will vary by bank and based on the volume of goods. In general, inventory acts as collateral for the loan, allowing a dealer to develop his business by purchasing inventory from retailers, traders, manufacturers, or distributors, resulting in a secured business loan.

Features of Inventory Financing

• You can apply for an asset-backed loan by presenting inventory as collateral.
• The loan amount relies on the percentage of the value of inventory established by the lender.
• The owner does not have to sell the products right away; it is a loan against them.
• Inventory is required as security for a Revolving Line of Credit or Secured Business Loan.
• The percentage and interest rate given will vary from lender to lender
• The turnaround time for stock or inventory conversion into cash is adjustable.
• Improves cash flow and liquidity by preserving stock assets.
• The loan amount against inventory typically ranges from 50% to 90% of its value.
• The inventory life is linked to the type of short-term credit and loan repayment.
• Preferred by small privately owned firms, SMEs, merchants, and distributors.

What are the advantages of a Loan Against Stock and Inventory?

• Inventory Finance unlocked funds that had been locked up in inventory.
• Helps you buy and stockpile inventory at a minimal cost while maintaining liquidity.
• Easy EMI repayment.
• Quick processing times.
• Up to 90% funding based on inventory value.

What are the eligibility requirements for Loans against Stock & Inventory?

• The borrower must be at least 18 years old.
• The applicant should be an Indian citizen.
• Minimum annual turnover: 30 lakhs
• Business must be functioning at the same location for the last one year.
• The CIBIL score must be above 750.
• The applicant must not have a credit default history with any bank or NBFC.

What documentation are required for a loan against stock and inventory?

• First, the applicant’s KYC documents include a PAN card, passport, Aadhaar card, voter’s ID card, electricity bill, water bill, and driver’s license.
• Business Address Proof – Ownership or rental agreement for business premises, GST registration, and business license.
  12-month bank statement.
• ITRs for two years, including balance sheets and profit and loss statements.
• GST returns for one year (if applicable).
• The cheque was cancelled.
• Copies of inventory invoices.
• Collateral paperwork.
• Stock value report.
• Collateral Documents

Different types of inventory financing :

1. Inventory Loan: It is simply a loan based on the value of the business inventory, wherein the loan amount can be obtained and used immediately from the lender.
2. Inventory Line of Credit: It is a credit limit sanctioned by the lender that allows the borrower to withdraw cash as many times as needed but not exceed the overall sanctioned amount. The interest rate will, however, apply only to the amount borrowed from the total sanctioned limit.