According to a recent survey, 24% of small businesses in the United States said the COVID-19 pandemic has had a “large negative effect” on their business. At a time when supply chains are stretched to their limits and growing companies are struggling to keep up with demand, innovative funding solutions are critical.
This has led to a sharp rise in adoption of inventory funding, which allows brands to access private money to fund their growth and allows private parties to directly support small businesses, which removes many hurdles that businesses face from traditional bank funding. A few reasons why it’s working:
1. Businesses can raise capital quickly.
Time is the most valuable asset for a growing business. Inventory funding often delivers capital to businesses within days, with approval and processing of application done even quicker. Compared to the months it can take to secure a bank loan, this swift solution can help small or midsize businesses (SMBs) grow and thrive — and provide a life preserver to those that can’t keep up with customer demand.
Case in point: Bright Stripes, a New Jersey-based company that creates DIY craft kits for kids was starting to take off when the COVID-19 pandemic hit. The founders turned to inventory funding to raise capital to finance their purchase orders. After four successful rounds of funding, the company raised $375,000, and now its products can be found at Target and other retailers.
2. It’s an effective alternative to bank loans and credit cards.
According to the Small Business Administration, 99.7% of companies are SMBs. Unfortunately, when it comes to funding, many of them don’t fit banks’ stringent criteria for sizable loans, particularly if the business is less than two years old. Difficult loan terms and immediate repayment add to the struggle of relying on large financial institutions. And while some entrepreneurs use credit cards for emergency funding, that’s not a scalable option either.
Inventory funding helps overcome the funding gap SMBs can face while rewarding those that provide much-needed funding. Considering almost one-third of small businesses fail because they lack sufficient capital, this support not only allows SMBs to grow and thrive, it helps them survive.
3. E-commerce is on the rise.
While many traditional business models were strained over the past year, ecommerce sellers experienced a boom. In 2020 U.S. consumers spent nearly $800 billion, up 32% year-over-year. Growth continued through 2021, and ecommerce is expected to continue grabbing market share from traditional retail into 2022.
Now more than ever, customers are comfortable making online transactions. The pandemic has transformed spending habits and views of small businesses: A recent Kearney survey found that 76% of consumers say they trust small businesses more than large ones. Inventory funding can provide a deeper connection between private parties and businesses they want to see prosper.
4. It keeps customers happy.
Inventory funding helps SMBs bloom and, when their inventory sells, lets supporters profit. Unlike loans and other traditional funding methods, each successful backing can build upon the next, encouraging customer loyalty and repeated backing.
There’s a third benefit, too: Manufacturers appreciate inventory funding because they know businesses are able to finance larger and more frequent manufacturing runs of their products.
5. Businesses can use it again and again.
Some SMBs may use one inventory funding campaign, while others may use them multiple times to propel growth. Success with inventory funding can lead to positive reviews and more dedicated customers. It can be a revolving door in which, as businesses benefit, so do their supporters.
Sean De Clercq is the CEO and Co-founder of Kickfurther. Throughout his entrepreneurial career, his driving goal has been to create a solution to one of the most difficult problems that growing businesses face: overcoming funding the production of their inventory. De Clercq began his career at a supply-chain management company and later grew a merchandising firm where he encountered the financing issues that would inspire founding Kickfurther.