Consumer confidence boost could lead to greater inventory financing demand

Consumer spending regarding retailers lagged in June, but that could change in July, as confidence levels increase. 

Should retail sales levels move higher, small- and medium-sized companies might need to increasingly rely on inventory financing to help ensure shelves are never empty. Oftentimes, retailers turn to banks to obtain a loan for this purpose, but smaller companies are often turned away by these financial institutions. 

Confidence among consumers about the economy picked up in July, with the Consumer Electronics Association Index of Consumer Expectations increasing 2.3 points to a mark of 167.8. 

"News reassuring continued stimulus from the Federal Reserve coupled with stocks reaching record highs, likely influenced marginal increases in sentiment towards the overall economy," said Shawn DuBravac, CEA chief economist and research senior director. 

Retailers could benefit greatly from increased consumer spending
With the poor sales performance in the retail sector during June, it would be beneficial if July's heightened consumer confidence levels translate into more transactions being completed at small- and medium-sized businesses. 

Sales at U.S. retailers were at a seasonally adjusted rate of $422.8 billion in June, up 0.4 percent from the previous month and 5.7 percent year-over-year, the U.S. Department of Commerce reported. Despite the monthly and annual increases, these numbers were under whelming as economists surveyed by Bloomberg called for a 0.8 percent gain. 

"The consumer is going to remain a solid performer in the economy, though not a stellar one," Russell Price, senior economist at Ameriprise Financial, told Bloomberg. "Looking forward, we'll have a slow uptake from an exceptionally weak second quarter."

Higher sales levels could lead to a greater need for inventory financing
Should consumer confidence increases translate into additional retail sales, small- and medium-sized businesses might need to increasingly rely on inventory financing. 

For one, with product flying off the shelves, there will likely be a need to replenish inventory. Smaller companies are often unable to do this on their own dime, and need some sort of financial assistance. However, banks tend to turn them down due to limited available capital or lagging cash flow.

Luckily, inventory financing is available, which enables retailers to use current product as collateral to obtain a revolving line of credit that can be utilized to purchase additional inventory to keep shelves stocked. 

This form of asset-based lending could be beneficial even if sales don't pick up, as funds can be put toward operating expenses, which could be difficult to cover if sales are below normal.