One of the more unorthodox ways of financing your business/cash flow, warehouse financing solidifies itself as a critical option for many retailers and wholesale companies looking to make profitable financial moves.
Warehouse financing, especially in California, can prove to have monumental benefits for experienced borrowers (we recommend doing your research for this one) but comes with some pretty heavy costs.
Interestingly enough, industrial warehouses have seen a strikingly high increase in loan turnarounds in recent years, most likely due to the volatility of the real estate market in California. With such an unpredictable market, it’s extremely important to have a safety net like a warehouse to hold tangible inventory or business expenses.
Do you think warehouse financing is the right option for your business? Or are you just interested in dipping your toe into another interesting loan option in the real estate financing industry to expand your profit margins?
Keep reading to learn everything you need to know about the fundamentals of Warehouse Financing and where to find the perfect lender!
What is Warehouse Financing?
A very interesting form of financial assistance, warehouse financing is known as an inventory loan option that manufacturers, retailers, or other small business owners acquire specifically using their inventory (tangible goods or products) as collateral for the loan.
Warehouse financing involves 3 total party members during the loan process:
- The borrower
- The lender
- The trustee
This extra party member, “the trustee”, is a requirement specifically for warehouse financing loans due to the collateral needing to be held up in a trust. These trustees hold the collateral for the loan on behalf of the lender themselves.
It’s important to note that warehouse financing is different than warehouse lending, and the two should not get mixed up during your research for the most profitable loan option.
Warehouse financing is typically best suited for small to mid-sized businesses that require a heavy inventory. These businesses can either just be starting out or looking to make some type of big financial move.
With a basic understanding of the process of warehouse financing and highlighting the businesses where a warehouse financing loan option would be beneficial. Let’s take a look at how different loan options provide different benefits for retailers and business owners!
Types of Warehouse Financing
There are a lot of factors that go into financing a loan, especially for retailers. Not only do they have to focus on their own financial status, and the financial status of their business. They have to be able to leverage their own inventory and understand the depreciation of those goods.
Because of this, the real estate financing industry has created a set of different loan types that borrowers can fall into. Business owners can choose between these different types of warehouse financing options depending on if they’re looking for lines of credit, mortgage loans, shorter or longer term lengths, etc.
These are the most common types of Warehouse financing options:
Commercial Bridge Loans
Also known as “swing financing” these types of loans are best measured by their quick turnaround time and immediate financing styles. Commercial bridge loans are used by investors and business owners who are looking to finance some type of business but need to do so fast. Because of the urgency of the loan itself, many borrowers prefer to go through a private hard money lender, who can provide a more personalized loan deal.
USDA Business & Industry (B&I)
This type of loan solution is specially curated for business owners living in rural America and dealing with a more localized business transaction. The main point of this type of loan is to assist business owners with good credit who need a line of credit to finance multiple business expenses in rural America.
SBA 7(a)
This loan method is the primary process that many small businesses are able to guarantee money for their business expenses. The U.S Small Business Administration is the organization that helps these small businesses get their money through the SBA 7(a) program. The most you can borrow is $5 million and the money they get can be used for any business expense.
Pros and Cons of Warehouse Financing
Best Option for Warehouse Financing
If you have gotten this far in the article, then you’re most likely already ready to pull the trigger on a loan option for your business. Whether you’re a small business looking to make your first monumental financial move, or a mid-sized business trying to expand profits, there are private lenders like PMA that can create personalized loan solutions for any of your business needs.
We highly recommend going through a private lender when dealing with collateral loan options mainly because you want a business partner you can trust to have your best interest and success in mind.
With Professional Mortgage Associates, your company’s success is our first priority, and we’ll make sure to be your one-stop-shop lending partner.
If you’re interested in choosing us for your business needs, please reach out to us via email at in**@pm***.com or check out the rest of our website for further information on our loan programs!
