Here is a way to get more of your inventory covered in your line of credit availability. It can allow you to use more of your bank financing, rather than having to finance it yourself.

This applies to companies bringing in merchandise from overseas. Typically, banks will exclude this inventory when calculating the line of credit availability. It doesn’t count as available inventory until it reaches the warehouse in the states.

Here is the thinking behind this. If the container goes down at sea, there is nothing for the bank to go back on. There is nothing they could turn around and sell and recoup what they had loaned against.

In other words, there is a risk to the bank that they don’t have coverage on.

Sometimes business is about managing risk. What can be done to take the risk off the table so that a transaction can get done or a relationship can begin.

Here there is a way. Have the bank as a named insured on the merchandise coming over. Then if a container goes down, the bank has something to go against that more than covers what they have lent. You change them from being totally exposed to being totally covered. I think a good banker would see the difference and be open to adding as available inventory to count towards your line of credit availability. Now you can get the bank to cover part of this inventory, without having to go more expensive line of credit or self financing.

For a small cost of insurance, you can open up a lot more bank financing. Consider this if you import from overseas.