Increasing household wealth could boost need for inventory financing

While the first half of the year was sluggish for small- and medium-sized retailers, conditions are looking up, which could lead to additional sales. As a result, businesses might need to rely on inventory financing to ensure shelves remain full. 

July home value appreciation hits seven-year high
Part of the reason Americans are experiencing increased household wealth is the fact the home values have been on the rise for the past couple of years, and that trend didn't change in July. 

Values were up 6 percent year-over-year in July, marking the first time appreciation was at this level since 2006 and the 14th straight month of annual gains, according to the latest Zillow Real Estate Market Reports. When compared to the previous month, values edged up 0.4 percent. 

"After three straight months of annual home value appreciation above 5 percent, the U.S. housing market recovery has proven it is on very sound footing," said Stan Humphries, chief economist at Zillow. "We have entered a new phase in the recovery when we can begin to turn away from ugly recent history and turn toward what the housing market of the future will look like and how it will act."

Appreciation expected to continue in the next couple of years
Home value gains aren't expected to reverse any time soon, as appreciation is projected to continue through 2017. More than 100 forecasters said they expect a 4.4 percent annual gain in 2014, followed by 3.6 percent, 3.5 percent and 3.4 percent increases in 2015, 2016 and 2017, respectively, according to the latest Zillow Home Price Expectations Survey

"Short-term expectations for home value appreciation through the end of this year are consistent with a nationwide housing market recovery that is both strengthening and widening, but still coping with high levels of negative equity, high demand and low inventory," said Zillow Senior Economist Dr. Svenja Gudell. "Combined, these factors will continue putting upward pressure on home values for the next few months." 

Retail sales jumped for fourth straight month in July
It appears as though rising home values are already impacting consumer spending, as retail sales increased once again in July, which could lead to a bump in reliance on inventory financing. 

U.S. retail and food services sales for July reached a seasonally adjusted annual rate of $424.5 billion, up 0.2 percent from the previous month and 5.4 percent year-over-year, according to the U.S. Department of Commerce

"We're seeing sales pick up in multiple categories – that's the promising sign that consumer spending might be a little but stronger in the third quarter," Michael Brown, economist at Wells Fargo Securities LLC, told Bloomberg. "We've seen wage and salary growth continue to expand with the pace of employment. That's helped support some additional consumer activity."

Should retail sales continue to climb, small- and medium-sized businesses may run into the need to replenish inventory with product coming off the shelves. At first, retailers may turn to a traditional banks to secure funds for this purpose, but limited available capital or a poor credit score could prevent them from being approved. 

If turned away by a bank, businesses are able to utilize inventory financing, which enables them to use current product as collateral to obtain a revolving line of credit. This can then be used to purchase additional product to ensure that shelves are never empty. 

Even if sales levels don't pick up, this form of asset-based lending could prove beneficial. Small- and medium sized businesses can turn to the funds made available through the revolving line of credit to help cover operating costs while sales are depressed.