What to do when you can’t afford inventory: A guide for small businesses

This article was paid for by SBG Funding

You’re prepping your business for the holiday season, but there’s one big problem: You’re short on inventory.

It’s a catch-22: You need to make sales to pay for additional stock, but you need more stock to make any sales.

Fortunately, this is a dilemma with several solutions.

A variety of small-business financing options are available to help cover the cost of additional inventory. 

1. Term loans

Useful for one-time business needs, term loans provide a lump sum that you agree to repay (with interest) in equal installments over a set term. If you apply for a term loan, there are a few considerations:

• Loan amount: Make sure the lender approves loans for the amount you need. For example, online lender SBG Funding offers financing from $5,000 to $5 million.
  
• Repayment terms: How much time will you have to repay the loan? Does the lender offer flexible repayment options?
  
• Interest rate: Find out the lender’s interest rate so you know how much you’ll pay on top of what you borrow. Compare rates among several lenders and ask whether they are fixed or variable.
  
• Funds availability: Look for a lender with a streamlined application process and the ability to make funds available quickly (ideally within 24 hours). 

Your business will also have to meet your lender’s eligibility requirements, which may include sufficient annual revenue, credit score and length of time in business.

2. Business line of credit

Rather than a lump sum, a business line of credit provides a pool of funds you can borrow from, repay and then tap into again as needed. Think of it as a business credit card, but with higher limits and lower interest rates.

When evaluating a business line of credit, consider:

• Credit limit: Make sure the lender approves you for sufficient credit to cover your inventory needs.
  
• Interest rate: Compare rates among several lenders and ask whether they are fixed or variable.
  
• Repayment terms: See whether you’ll need to make payments weekly, biweekly or monthly and if there is any flexibility in the repayment schedule.
  
• Draw speed: Look for a lender that lets you easily access funds 24/7, including nights and weekends, so you can act quickly when opportunities to restock arise.
  
• Penalties and fees: Ask about annual fees, maintenance charges and draw fees, as well as late fees or other penalties for delayed or missed payments.

Eligibility requirements for a business line of credit are similar to those for a term loan. 

3. SBA 7(a) loan

If you can’t get funding from a conventional loan, an SBA 7(a) loan helps small businesses access larger amounts of money with longer repayment terms. Backed by the Small Business Administration, it can be used for a variety of purposes, including refinancing debt,  expanding your business and, yes, purchasing more inventory.

When considering an SBA 7(a) loan, pay attention to:

• Loan amount: SBA 7(a) loans can go up to $5 million, making them a good option for larger inventory purchases.
  
• Repayment terms: Loan terms can be up to 25 years, giving your business more breathing room.
  
• Interest rates: Rates are competitive and may be fixed or variable.
  
• Application process: SBA loans require more documentation and take longer to fund than other loans (generally 60 to 90 days), so you’ll need to plan ahead.

SBA 7(a) loans are a great fit if you’re looking for more financing with flexible repayment. They do come with more prep time and paperwork, however, and have stringent eligibility requirements dictated by the SBA. Among them, the borrower:

• Must be a for-profit business operating in the U.S.
• Must be small according to the SBA’s size requirements
• Cannot be an ineligible business, per SBA definitions
• Must not be able to obtain the desired credit from private sources

Loans and credit are great ways to quickly get funds for inventory, but they’re not the only solutions. 

Negotiate with your suppliers

See if your suppliers are willing to offer you discounts, smaller order minimums or extended payment terms. Even small changes can help with your cash flow. 

Stock what’s most important

If money is tight, you don’t need to replenish everything. Focus on your most popular or higher-margin items to get the best return.

Clear out low-sellers

Have products that haven’t been moving? Offer them at a major discount to get some cash in hand and acquire more of what sells. 

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