One of the financial concerns of companies within the food industry has been financing for food distributors. While inventory in other industries can lose value over time such as clothing, electronics, and furniture, inventory in the food industry has an expiration date. Lending to the food distributors has not been easy over the last 4 to 5 years. Many lenders are not familiar with sales cycles and turnover rates. Such lenders are more likely to understand and value those assets and provide greater liquidity and flexibility. Traditional banks may not be the best source in providing financing for food distributors.
A Line of Credit
A business line of credit is probably the best option. However, business lines of credit are not easy to qualify for. However, today there is an array of alternative lenders providing business lines of credit at a higher cost. The convenience of a business line of credit is that you will only pay over money you utilize. If you can obtain a business line of credit with a bank, your cost of capital will remain very low.
Factoring is another solution. Many food distributors turn to factoring. The challenge that factoring has is that it takes time to process and there is double underwriting process. If you are seeking factoring not only does your company need to qualify but the companies that owe you money as well. You may be approved but the company you sell to may not be approved. Factoring companies request financial documents not only from you, but from the companies you sell to. Imagine the amount of paperwork that is required. In the end factoring is a good solution.
Cash Flow Lending
Cash flow lending is becoming more popular every day. While some business owners know it as a cash advance or a daily payment loan, this is one of the fastest solutions. The process is fast and simple. Most cash flow lenders can provide you with a loan approval within 2 business days. If you can turn around inventory in less than 30 days and make a 20% profit; these loans may be your solution. They tend to be costly. The average rate can range from 1.5% to 3.5% per month. However, if you can make 20% return every month and pay 3%, you will still come out ahead and yield a 17% return without utilizing your own capital. The rates are very similar to factoring, the difference is the payment collection process.
There are other solutions. These are some of the best alternatives to consider when seeking financing for food inventory.