About Inventory Financing for Startups
Startups exist in all industries and sell a variety of products including produce, electronics, apparel, cosmetics, services, and more. Every business has different inventory requirements and manages a unique budget. For example, a company that sells food will need a large, consistent inventory budget, while a large furniture seller may only need to restock supplies once in a while. Breaking down your budget and forecasting your needs will help you plan for your inventory budget.
Depending on the type of business you start, you’ll have to pay manufacturing costs, fulfillment expenses, and warehouse fees. There’s also shipping costs to cover as well as marketing campaigns to fund. You need to get your goods from somewhere, and they need to be stored properly until you can sell them to your customers. Funding will help you manage this process, so you don’t have to worry about running out of cash before you can stock up on inventory.
Inventory Financing Opportunities for Startups
As a startup, you’ll need to be creative when it comes to funding. Traditional banks typically only work with established businesses, and lenders’ eligibility requirements vary. Your best bet would be alternative funding providers and investors, until you have enough trading history to show to lenders. However, there are many options out there, so with a little research, you’ll be able to find an inventory financing provider that works for your startup.
Bank loan
Many businesses turn to banks for money before trying alternative lenders. Bank loans are a lump sum that you must repay to the bank through fixed payments over an agreed upon amount of time. It often comes with a high loan limit and lower interest rates. The process, however, is long and tedious. Banks usually require that businesses be active for at least three years before applying. Your monthly revenue should be on the higher side, as well. Collateral is sometimes necessary in order to secure the loan. You could use your property, inventory, equipment, and even invoices.
Pros
- High loan limit
- Lower interest rates
- Interest rates are tax deductible
Cons
- Strict eligibility requirements
- Low approval rates
- Long application process
- Collateral may be required
When considering a bank loan, it’s important to ask yourself some questions. Can they provide you the sum you need? Do you meet their eligibility requirements? What are your chances of approval? Do you have the necessary assets if they ask for collateral? This process is long and may impact credit score just by applying, so make sure you’ve covered the basics before diving in.
Revolving line of credit
A revolving line of credit is similar to a credit card because more funds become available to you as you pay off the loan. It’s a consistent form of funding that will get you through the slow seasons and prepare you for emergencies. It’s also a great way to optimize day-to-day expenses. The limit they allow you will depend on your business history, and it’s often on the lower side.
Pros
- Freedom of use
- Builds business credit
- Easy access
- Only pay interest on the funds you actually use
Cons
- High interest
- Low borrowing limits
- There can be extra fees
As long as you have the capital to make monthly payments, then you can use a revolving line of credit to your advantage. It can help you keep up with your regular supply chain payments and inventory, so you know you have capital on hand if you need it. If you’re looking to expand, however, the low limit of a line of credit might not be the best option for you.
Inventory financing
Inventory financing for startups is a loan provided to you by a lender to pay for inventory. This type of loan is often easy to obtain, as the inventory itself serves as collateral. It offers you the chance to launch new products or expand current product lines. Credit history isn’t always a factor when it comes to the lender’s final decision, so it’s worth applying if you meet their requirements. The amount you’re approved for may or may not cover all of the inventory you plan to purchase.
Pros
- Quick and easy process
- Inventory serves as collateral
- Credit checks aren’t always necessary
Cons
- You can only use the funds for inventory
- The funding might not cover your full inventory requirements
- Requires regular inventory evaluations by lender
Startups may benefit from this kind of loan, as inventory procurement and staying in stock is the key to success in eCommerce. Funding will help you optimize your budget, so you can grow at your own pace. Every lender will have different eligibility requirements, so shop around until you find one that fits your needs. Keep in mind that they will regularly check your inventory, as it’s a big part of their investment.
Crowdfunding
Crowdfunding is a great choice for startups, especially if they have an innovative or unique idea. It involves putting together an idea to pitch to investors, and getting smaller amounts of funding from many sources. You can find crowdfunding platforms across the internet, but with so many ideas out there, it’s up to you to make sure you stand out. The challenge is getting people to invest in you and your product or business idea. Crowdfunding doesn’t involve credit checks or business history, as these are private people who can spend their money how they please. Pros
Pros
- Quick funds
- Keep 100% creative control
- Available to those who don’t qualify for regular loans
Cons
- Campaigns require time, effort, and creativity
- High risk of failure
- Idea theft is possible
Building a successful campaign takes a great deal of thought, time, and effort. In fact, a large percentage of crowdfunding campaigns do not succeed in reaching their goals. One of the biggest benefits, however, is that you usually do not have to pay back the investments. Instead, you give your investors rewards or even a small share in your business, depending on the crowdfunding platform and arrangement you agree to. With all the people who have access to your idea, remember that idea theft is possible.
Equity financing
Equity financing is when you receive capital from investors in exchange for shares in your business. Investors can include family and friends, but equity financing is most often offered by angel investors and venture capitalists. These individuals and firms seek out promising businesses in which to invest. They expect to receive a profit-share and often a decision-making stake in your business. Keep in mind that you are diluting the company’s ownership with every share that you sell.
Pros
- Fast access to large sums of capital
- No obligation to repay if it fails
- Receive insights and experience from investors
Cons
- Ownership is diluted
- Profits must be shared among all the shareholders
- Can ultimately be more expensive than interest on a regular loan
Shareholders will earn their money back from the sales that the company makes. You don’t have to repay them if the business fails. Be careful who you choose to work with, too. They will control part of your company, after all. If you do not want to give away any ownership in your company, equity financing isn’t right for you.
Business grant
Startups can turn to business grants when they don’t have luck with regular loans or investors. Grants are provided by private organizations, the state, and the federal government. You don’t have to pay back the grant, but they will dictate what you spend it on and when you spend it. If you work out a reasonable strategy with them, then you have nothing to worry about.
Pros
- You don’t have to repay the loan
- There are grants designed for startups
- It boosts your company’s credibility
Cons
- Applications are long and time consuming
- Competitive and difficult to obtain
- Short-term solution only
Grants are very difficult to obtain, as the paperwork and requirements are monumental. In addition, grants are usually designed to further a specific goal or cause. There might not be a relevant grant available for your business. Make sure you are eligible before putting in all the time it takes to apply, as even eligible businesses get turned down every day, due to the overwhelming amount of applications they receive. This is also a short-term solution to your funding needs.
Merchant cash advance
If you’re in need of quick cash, then a merchant cash advance might be for you. It’s a sum of capital you receive from a funder and pay back as a percentage of each debit and credit card sale. Your credit score isn’t always a factor in their considerations, so if you have a lack of business history, you still have a chance. They often only require that you be in business for at least three months, which is very helpful for startups looking for inventory financing. Depending on the lender, you’ll have a fixed or flexible payment schedule.
Pros
- Quick cash with lenient requirements
- Repayments are a percentage of credit and debit card sales
- No collateral needed
Cons
- High cost of capital
- Doesn’t build credit history
- They can take money out of your account, regardless of sales volume
The lenient eligibility requirements of a merchant cash advance often come with a high cost of capital due to the perceived risk of working with a startup or newer business. It also won’t help you build credit history, so you can’t get a better loan down the line with this funding history alone. Even if you had a poor month in sales, they can still pull money from your account if you didn’t make the minimum payment. Overall, this is a good choice for new companies who need a boost in cash flow and may not be able to commit to the fixed repayments that come with other types of funding.
8fig: An Alternative to Inventory Financing
While 8fig does not fund startups before they start bringing in revenue, we do have very lenient requirements compared to other funding solution. Depending on your revenue, you can reach out to us only six months to a year into your trading history and ask for assistance. We provide you with tools to grow your business, along with a customized funding option. Even if you don’t yet qualify for funding, 8fig’s helpful planning and analytics tools can help you manage your business and grow.
Why use 8fig for startup inventory financing
8fig has flexible terms and great growth tools to apply to your new business. If you meet our eligibility requirements, we’ll fund more than just your inventory, offering you capital for up to 90% of your supply chain costs. Plus, we offer free planning and analytics tools to help you optimize your supply chain, cash flow, and operations. You can even adjust your payment plan and change the details as you go. You can count on 8fig to help you throughout the entire process.
How 8fig works
1. Apply
The application process is fast and easy. Answer some questions about your business and sales, and then provide basic information about your supply chain stages and expenses.
2. Connect your store and bank account
In order to provide you with an optimized Growth Plan, 8fig requires that you connect your store and bank account to the 8fig platform.
3. Get funded
With 8fig, you can get funded in just days. Since 8fig funding is continuous, you receive capital infusions into your business right when you need it.
4. Make adjustments
If something changes and you need to adjust your payments, remittance schedules, or even funding amount, you can always do so thanks to 8fig’s flexibility.
5. Grow your business
All that’s left to do is sell, sell, sell. With 8fig, businesses are able to scale 2.5x as fast.
What 8fig offers in addition to financing
8fig has more to offer new businesses than great funding opportunities. We provide tools that you can use to increase your growth. You can manage your cash flow, plan your supply chain, and analyze your sales. When in doubt, you can count on 8fig to get you through the rough patches.
You can manage, fund, and grow your online store all on one growth platform. Although we don’t take any equity in your business, we see you as a business partner, so we won’t send you away after the deal is done. Instead of one lump sum, we provide you continuous capital to maximize your cash flow and ensure your long-term success.
Who is eligible for inventory financing for startups from 8fig
Although 8fig doesn’t supply startups with funding from the very beginning, we do offer tools and resources for all eCommerce sellers. And if you have 12 months of trading history with an annual revenue of over $100,000 and an average monthly revenue of at least $8,000, you’ll likely be eligible for funding.
The application process is fast and simple. If approved, you’ll get your funds in days, rather than weeks or months. You’ll retain full control of your business, as 8fig simply supplies the cash and tools you need to succeed.
How to apply for 8fig financing
It’s easy to apply for 8fig financing, and it only takes a few minutes. Simply answer the questions and follow the prompts and you’ll get funded in no time!