Lines of Credit for Wholesale Businesses

From accessing affordable lines of credit to using them for working capital and buying power; wholesalers need lines of credit to compete and thrive.

By Matthew Elling
Co-Founder and Consultant at Line of Credit Depot
Updated on February 10, 2021
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The business model of Wholesalers has evolved with the changing retail climate. With the Amazon boom and many manufacturers selling direct to consumers; this creates a challenge for wholesale businesses, but also this changing landscape creates new available opportunities. The access to affordable capital in the form of a dynamic line of credit facility has never been more important for a wholesale business. Retailers are still buying from Wholesalers and possessing the agility to act fast and buy goods from distributors and manufacturers is key. One of the most popular ways wholesaling businesses use credit lines, is for product. We see this as the majority of our clients prefer to draw from a line of credit as needed, because they know the exact cost of the capital. This sometimes isn't so easy to do with a structured loan or merchant cash advance....not to mention it's a lot cheaper!

For wholesalers, buying products in bulk can require bulk capital. The buying power of your wholesale business is almost completely dependent on correctly utilizing cash on hand to fund purchases and therefor sell product to your buyers and retailers. Wholesalers understand that access to affordable revolving debt can help supplement available liquid cash to finance large transactions and keep operational cash in the business. For example, if it makes business sense to draw an extra $200,000 from a line of credit, since more goods can be purchased. The wholesaler is motivated to do this if the profits of ordering more exceed the cost of capital. This application also needs the factor of soft costs; wharehousing, shipping, etc.

'Buy low, sell high' is the name of the game for a wholesale business...but if you are a wholesale business owner, you are also taking into account your Net profits. This means that managing the costs of doing business ties into the buy low/sell high mantra. You can buy low and sell high, but if your cost of capital to actually finance the product eats into your margins...the del may not be worth it. That is why wholesale businesses need the cheapest business financing available.

When to buy product? From talking with our manufacturing clients, we can understand how competitive the wholesale business is. If you are looking at a one off spot deal to flip goods, speed is key! That's why waiting on AR (accounts receivable) shouldn't hold up a potential order. Accessing a line of credit can be the go to, so you can book the order.

Many wholesalers are shifting gears and then selling direct to consumer with Amazon stores and Ecommerce retailers. For example, products that wholesalers used to sell to retailers for brick and mortar stores are now sold on websites. This can create a great opportunity for a wholesaler to develop their down 'direct to consumer' website properties.

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As wholesaling is changing with Direct Sales, you know as a business owner that it's more important than ever to buy aggressively, since manufacturers may be skipping selling to wholesalers and sell products directly to consumers via Ecommerce. Since margins for the manufacturer can potentially be better is a wholesaler is removed from the picture, it is strategic to have multiple pools of funds to help get a deal done.

When a wholesale company needs cash for an order, they can transfer funds from a revolving line of credit and then pay their supplier directly. This process can happen same day, so the deal can move quickly.

In regards to circumventing buyers and selling direct to Consumers, some wholesalers are using borrowed money to build their Ecommerce online presence. Although this can be lucrative in the future, it requires cheap capital to get going, since a wholesale business would incur logistical expenses, etc.

Line of Credit Depot pairs wholesale businesses with a line of credit program that is: Fast, Secure and Cheap. Does your bank only offer you a small loan approval or access to a Visa credit card? Unless you want to pay 13% to 30% cost of capital, these facilities are not conducive of running a successful wholesale operation. If you aply with Line of Credit Depot, we can have you approved for a business line of credit instantly. Our rates range anywhere from 4% APR to 10% APR and are considered 'true revolving lines of credit'.

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