By Jeff Collins
Equipment dealers face financing challenges from two sides: acquiring the assets they need to grow; and helping their clients find flexible financing programs. Inventory financing can help dealers meet both needs, efficiently and effectively.
Inventory financing, at its core, is a form of asset-based lending in which the amount borrowed is determined by the value of your inventory. Typically, it will be a short-term loan or a line of credit; lenders will lend a percent of the inventory’s value. There’s usually no need for collateral since the inventory secures the loan.
Here are five key ways in which dealers can benefit from smart, strategic use of inventory financing.
- Purchase equipment. To survive, thrive and grow, dealers need assets to sell. Simply put, inventory financing lets you make the purchases you need when you need them. With inventory financing, dealers may be more able to buy in volume and earn volume discounts. The pandemic has reinforced the importance of inventory planning, with many dealers looking to carry more inventory than they would otherwise (when it’s available). Inventory financing can give them the ability to do so.
- Purchase equipment for different industries. Inventory financing may be relatively common among traditional transportation companies. But it also can fill vital needs for other industries and equipment, such as forestry (chippers), construction equipment, electric vehicles, fire trucks, industrial equipment and material handling equipment (forklifts).
- Increase sales. Manufacturers supporting inventory finance programs help a dealer stock inventory and dealers which have inventory on hand will benefit from increased sales. In many industries, a customer won’t wait if the dealer does not have the inventory in stock when needed; that customer will simply find a dealer that has it. And, as the cost of vehicles — both new and used — and other equipment in every industry continues to climb, the vast majority of customers will need to finance their purchases. The ability to offer financing programs can often mean the difference in getting a sale or not. The ability to offer flexible programs to meet a customer’s needs can you seal a deal quickly.
- Improve cash flow. Emerging from the pandemic, companies are watching and guarding cash flow in a way they have not before. Especially in a fluctuating economy, it can be smart to use funds from inventory financing for capital expenditures – and use cash for staffing and other expenditures needed to grow the business.
- Improve customer relationships. When a manufacturer can help dealers acquire the equipment on terms that work for them, that manufacturer will realize stronger customer relationships for the short and long term. Offering financing options lets customers know you are putting them first. Results include greater brand loyalty and repeat business.
Additional benefits of partnering with an inventory finance company
Today, with supply shortages fuelling pent-up demand, the ability to partner with a reliable, solid inventory financing company is critical. Beyond the base reasons we’ve outlined above, dealers may realize some additional benefits.
When you have the need for speed: Getting quick-turn credit decisions and expedited funding can be challenging. An experienced, customer-centric inventory finance partner can make things happen fast, often even providing same-day funding.
When you need to finance used equipment: Not every inventory finance provider will do this, but the ones who do can be invaluable.
When you need individualized financing programs: Some manufacturers partner with rigid lenders offering a “one size fits all” type of package. A lender who is truly an inventory financing partner, however, will be able to develop programs that work for your customers and their situations. Customers who may have considered purchasing elsewhere may decide to purchase from a manufacturer on a regular basis if they know financing options that meet their terms are available.
Smart business in the transportation industry calls for smart use of assets — from vehicles to cash. Finding and working with an inventory finance partner can go a long way toward improving a dealer’s cash flow, inventory position and customer satisfaction.
Jeff Collins is Vice President, Operations, Inventory Finance for Mitsubishi HC Capital Canada, Inc. is a wholly owned subsidiary of Mitsubishi HC Capital Inc., formed in 2021 through the merger of Mitsubishi UFJ Lease & Finance and Hitachi Capital.