Using Inventory Finance to Expand into New Markets
Inventory financing is a type of lending that lets businesses borrow money by using their inventory as the collateral for the loan. A form of asset-based lending, it usually comes in the form of a short-term loan or line of credit. The amount a business can borrow is determined by the value of its inventory.
Manufacturers in a wide variety of industries – from transportation and construction to retail and restaurants – often use inventory financing to purchase parts and raw materials. It’s straightforward and it works well. Today, they are turning to inventory financing to do even more – including expanding into new markets.
New-market expansion strategy can take different forms, all designed to increase sales of a company’s products or services. The reasons can be diverse – a desire to meet existing customers’ changing needs, stay on par with competitors’ moves, grow the customer base – but all will require smart planning and smart financing. Inventory financing can play an important role.
New product or service lines
To stay competitive, or gain a competitive advantage, companies routinely will introduce new products and services. Doing so often requires investment in technology, research and development, manufacturing and/or distribution, intellectual property, employee education and, ultimately, marketing and communications. Sometimes, a company will make an acquisition to bring on an established product or service.
Each of those steps can be extremely expensive, and reach beyond cash reserves. While usually not an answer for long-term capital needs, inventory financing can provide needed cash for some shorter-term costs of expanding product or service lines.
Clean energy offers one good example. Today, companies of all sizes and types have sustainability goals. In the financing industry, providers are taking their foundational knowledge and services to a new level to help companies meet those goals. From installation of energy-efficient lighting at a facility manufacturing new products to fleet electrification among transportation dealers, innovative inventory finance programs are driving expansion with new products and services.
New customer segments
New-market growth can also mean reaching new customer segments with existing products or services. Needs for funding will vary across industries. For instance, in manufacturing, developing a new customer segment could include building out a distribution network. In transportation, it could include implementation of a retail program for dealers. Research to identify new segments, gain deep understanding their needs, tailor products and services to them, then communicate and market to the new segments takes resources – resources that inventory finance can help provide.
New geographic areas
Business expansion to new geographic areas also requires upfront costs. Inventory financing may be able to help fund new offices, new employees and training. For companies looking to expand cross-border business between the United States and Canada, a strong and experienced inventory finance provider can provide solutions to facilitate and speed business transactions.
Benefits
To summarize, expanding business with inventory finance offers several benefits, including:
- No additional collateral. There’s usually no need for additional collateral since inventory secures the loan.
- Fast funding. A good inventory financing program can assure them that manufacturers will receive funding as soon as they ship goods. That provides immediate funding that a company can use for any purpose it needs – including funding defined growth initiatives.
- Customization. Customized financing programs help each business manage their unique needs as they pursue market expansion.
- Flexibility. Fluctuating interest rates, inflation, bond prices and international economies have impressed on businesses the need to find solutions that allow flexibility in repayment schedules and terms. Individualized inventory financing programs based on detailed understanding of a company’s industry, market and business model can provide this flexibility.
Inventory financing can give companies a good financing option as they work to drive revenue and expand into new markets. Mitsubishi HC Capital America is a commercial finance company that provides customized solutions to help organizations of all sizes accelerate growth. Our experts throughout North America are leaders in inventory finance. If you would like to find out more about how to expand into new markets with inventory finance, contact us today.