IFA Annual Conference Panel Preview: Using Inventory Financing to Keep Up with Demand for Availability

Harvey Gross of HSG Services, Kristen Palmer of Iron Horse Credit and Paul Schuldiner of Rosenthal & Rosenthal provide their perspective on the inventory lending space as a preview to a panel at the International Factoring Association’s Annual Conference.   

Inventory lending has become an increasingly important tool for financing providers in recent years, especially with the explosive growth of e-commerce sales. For factors, understanding the intricacies of inventory lending and how to work with such providers can help improve the options they can present to factoring clients.

In an in-depth panel at the International Factoring Association’s Annual Conference in New Orleans, a group of inventory lending experts will explore this sector in great detail, providing context for the factoring community. Harvey Gross, president of HSG Services, will moderate the panel, which will feature panelists Bob Grbic, president and CEO of White Oak Commercial Finance; Kristen Palmer, business development officer at Iron Horse Credit; and Paul Schuldiner, executive vice president and chief lending officer at Rosenthal & Rosenthal. Gross, Palmer and Schuldiner spoke with Commercial Factor to provide a preview of the panel.

How will this roundtable be structured? What are some of the specific topics you’ll be digging into?

Harvey Gross: The panel will be interactive and cover many important points regarding the financing of inventory and the steps to do so.

Kristen Palmer: We're looking forward to discussing how each facility can enhance each other as well as how to identify the right financing facility for both distressed borrowers and growing borrowers. We feel that post-COVID-19 discussions are also necessary, as they've brought on a new set of disruptions and credit changes within the lending industry.

Paul Schuldiner: This will be an interactive panel that will cover inventory financing from multiple perspectives — including factors that provide inventory financing as part of a complete working capital facility, or as a standalone inventory facility provided by alternative financing companies and purchase order financing providers that work in tandem with third-party factoring companies.

What are you hoping attendees will get out of the event?

Gross: The panel will advise on inventory and the entire supply chain, showing how important accounts receivables are to lenders and borrowers.

Palmer: We hope the attendees are able to takeaway more knowledge and insight on when to introduce and identify different financing facilities to help their borrowers. We also hope to give them more avenues of "right-siding" their portfolio before chaos strikes.

Schuldiner: Attendees will hopefully better understand the intricacies and challenges of inventory lending and how to work with specialists when it’s appropriate to balance risk.

Who do you think will get the most of this panel? Why?

Gross: All lenders will see the value as well as many financial advisors, lawyers and investors, as liquidity and profits are at stake in this type of financing.

Palmer: We believe this should be an educational and conversational panel. So, since we’ll be explaining how these different facilities enhance each other and, in a sense, could save each other, more than likely, the younger lending crowd is going to take more away from that. And I also believe that those who are not as intimately involved in the asset-based lending world will learn the additional facilities that are available to them. 

Schuldiner: Factoring account executives, underwriters and new business development personnel who are often asked to provide or find an inventory finance solution as part of a lending relationship (both existing or prospective). Attorneys who are involved in drafting or negotiating inter-creditor agreements will also benefit from hearing more about the inner workings of inventory finance and how factors and inventory lending specialists work together.

How have supply chain disruptions led to a greater reliance on inventory finance? 

Gross: During COVID-19, many suppliers and importers needed to purchase earlier than in the past, causing delays until an A/R facility could be produced.

Palmer: This is definitely one of the topics we plan to discuss and has a pretty in-depth answer having to do with the tightening of credit boxes from your traditional banks and ABL lenders being more conservative where necessary.

Schuldiner: Supply chain disruptions have lengthened the timing of the trade and working capital cycle of borrowers. This has also impacted the timing of creating accounts receivable that can be factored and thus, the borrower’s cash flow. Furthermore, lenders of all types have come to appreciate how connected the global supply chain is and the importance of evaluating your clients' business risks in this area.

How has the rising rate environment impacted the inventory financing sector?

Gross: Costs have certainly gone up, particularly labor, transportation and warehouse expenses, and this dilemma has not always led to raising prices to customers.

Palmer: Unfortunately, all lenders, including traditional banks, are suffering from the rising rates. I think, across the board, everyone is increasing theirs as well in order to keep up. It's certainly sticker-shocking to individuals and small businesses alike. It's shockingly not creating more of a space to merchant cash advance lenders after their crash, but it is forcing small businesses to cut costs where necessary in order to obtain financing facilities to help them survive. I think it's important to educate, not only the lending world, but the small business world, on how non-traditional financing facilities may come with slightly higher rates but are still a great alternative to growing your business versus taking out high-interest rate loans and/or spreading out equity.

Schuldiner: The rising rate strategy has been a Federal Reserve tool to deal with inflation. Rising product costs have impacted margins and inventory valuations, which, in turn, directly impact inventory financing and the cost of such financing.  

What is your outlook for the factoring and inventory finance industries overall in 2023?

Gross: We believe, in addition to the points mentioned to the supply chain, the e-commerce market will give greater need for lenders to focus on inventory than A/R.

Palmer: For me, as an inventory lender, I expect an uptick in business, good and bad. It's all about sorting through those. I do know that my colleagues in other lending verticals have seen a slowdown in business. I'll let them speak specifically as to why they believe that is. My first assumption is that traditional banks held on to their borrowers for longer than they typically would due to fear of the changing economy and rising rates.

Schuldiner: The recent troubles in the banking sector may only magnify a tightening of bank credit, which, in turn, will potentially create an increase in volume of activity and perhaps better-quality lending opportunities for non-bank lenders. That said, it will be important for factors and inventory lenders to remain vigilant in receiving and reviewing timely inventory reporting, make more frequent use of inventory appraisals, and make sure field exam procedures are regularly performed relating to physical counts, inventory in transit, costing and gross margin analysis. Lenders have to be cognizant of the macroeconomic environment and the potential effects on collateral performance and client viability. 

Anything else you’d like to mention?

Gross: The panel will discuss the many players needed to be successful as to appraisals, especially by third parties, controls and inter-creditor agreements.

Schuldiner: I think it will be important for anyone lending on inventory to start to better utilize technology as part of monitoring inventory. Financing of e-commerce direct-to-consumer inventory has highlighted the importance of data in the decision-making process.