Can I get a loan against inventory?
January 24, 2024
by a searcher in Chicago, IL, USA
Hi All!
I am looking at a deal that has approximately $1,000,000 worth of inventory (non perishable goods).
Im wondering whether I am able to get a loan against the inventory and use the proceeds towards
buying the business? Has anyone had experience doing this and are there lenders who specialize in
this type of lending?
Thank you in advance for your help! :)
from University of Pennsylvania in Seattle, WA, USA
If you are looking for a large acquisition loan, this probably doesn't help much. Almost all deals I have looked at are under secured and most lenders are going to want to secure against anything they can (including inventory). I did do an SBA deal that carved out $250k of inventory from the SBA loan to secure a conventional LOC but that was purely for WC cushion and was not used to finance the purchase - I know this was not typical and took a bit of negotiation. If the deal was much larger (see Hertz LBO debt), it might make sense to have multi-tranche debt with an ABS layer, but for a deal this size, I would guess uni-tranche will be cheaper.
If this is a situation where the business has substantially more inventory than required, I would negotiate to exclude it from the deal and have a side agreement to purchase from the seller as needed at current value.
That's all the what if's I can think of based on the question. Good luck!
from Boise State University in 800 W Main St, Boise, ID 83702, USA