The past couple of months have seen consumer confidence dip, but that trend could be changing. As a result, spending may pick up, potentially increasing the need for inventory financing among small- and medium-sized retailers.
Following a few weeks of declines, the Bloomberg Consumer Comfort Index increased to minus-32.1 in the week ending September 8, up from minus-32.3 in the previous seven-day period.
Part of the reason consumers are rebounding is the strong employment situation. First-time applications for unemployment benefits fell by 31,000 in the week ending September 7 to 323,000, according to the U.S. Department of Labor. This brought the four-week moving average down by 7,500 applications to 328,750.
"Stronger job growth may be on the horizon," Millan Mulraine, director of U.S. rates research at TD Securities, told Bloomberg. "When we start seeing improvement in the labor market, I think that will provide another tailwind for confidence, and spending, going forward."
Should favorable consumer conditions translate into higher spending levels, small- and medium-sized retailers could see a pickup in sales. As a result, there could end up being an increased reliance on inventory financing.
When there are more completed transactions, product is coming off the shelves, which means inventory needs to be replenished. For smaller companies, this can be difficult to do on their own, as they often have limited available resources. Also, traditional banks often turn these businesses away due to poor cash flow or credit.
However, asset-based lending can provide the funds needed to keep shelves full. Inventory financing allows retailers to use current product as collateral to obtain a revolving line of credit, which, in turn, can be drawn from to purchase additional inventory to ensure product is always in stock.