Becoming a wholesaler requires handling significant capital to invest in inventory and operating costs. To fund your business, you’ll need financing, which can be a complex process. Financing options may also change over time as your business grows or you have opportunities to reinvest profits into new ventures.
There are different types of financing available to wholesalers, all with pros and cons based on your personal situation. Here are ways wholesalers manage their financing and keep their business growing.
A key benefit of wholesaling is its ability to give you a diverse set of revenue streams. When you diversify your financing, you’re spreading out your financing sources across different types of lenders.
For example, you may choose to finance half your inventory purchase from a bank loan and the other half from credit cards.
Credit cards are a common way wholesalers fund their businesses. Credit cards allow you to borrow money against your future sales purchases with a standard interest rate. This can be a great way to get some cash quickly and pay it off over the next 30 days without any out-of-pocket costs. Wholesalers often use credit cards to finance a smaller portion of their inventory.
For example, a wholesale cabinets business may have a $100,000 budget. They may use $20,000 in credit cards to purchase for their inventory.
Partnerships can be a great way to get your wholesale business funded quickly. There are various types of partnerships, including joint ventures, silent partnerships, and equity partnerships. Wholesalers may enter into joint ventures with other wholesalers who have excess cash but lack inventory, products or expertise.
Joint ventures are agreements that allow wholesalers to help one another to grow their businesses. Wholesalers who are just starting out often enter into silent partnerships with experienced wholesalers.
Equity Financing and Managing Inventory Effectively
Wholesalers often have to wait a few months after starting their business before they have a large enough profit to purchase inventory. Equity financing allows you to get a small amount of funding upfront and a larger amount once your business starts generating profits.
And, as a wholesaler, you’re going to have a lot of inventory. This means you have the potential to have a lot of inventory that you need to store, track, and manage. This can be time-consuming and cost you money in extra storage or warehouse space.