What You Need to Know About Sales Financing?

Sales financing is a type of debt financing for businesses that provide the seller with cash in advance of a sale.

Sales financing enables firms to increase their sales by providing them with increased access to credit, enabling them to borrow from a third party against an existing future asset, where future assets are financed with present cash. In the same way that an individual might use borrowed funds from family members or friends to pay for their education or build their business, companies can use sales financing as a financing tool.

Firms that offer sales-financing may have access to financial services networks, allowing them to fund the purchase of a product or service and receive payment in exchange.

Sales financing can be used to finance the purchase of equipment, inventory or building additions and expansions, as well as direct-to-consumer products such as software. Likewise, sales financing can be used to finance advertising campaigns and marketing strategies; advertising itself often serves as an inducement for potential buyers.

Sales financing can be used profitably by firms that are already making a profit. In this case, the firm can take the proceeds from selling their product and use it to pay off the loan, reducing its interest charges.

When not used in this manner, sales financing requires the seller to find appropriate funding sources, often using bank loans or private investors.

Sales financing provides financing to businesses in exchange for a specified future payment or events. Sales financing can be used in connection with:

Sales financing can be used as a refinancing tool by companies that have already repaid loans issued from bank lines of credit or private funding sources. The company may have received information indicating that additional financing is required to reach its financial goals, and the sales-financing is used in conjunction with this additional funding to complete their goal.

The company may choose to repay the sales financing along with the additional funding, as the financing could be used as a source of funds required for smaller expenditures (such as maintenance on equipment or purchases of inventory).

Sales financing can be used by firms owned by a high net-worth individual to help make their asset sale complete.