Increasing retail sales may push inventory financing demand

In the beginning of the year, retail sales were a bit sluggish, but it appears as though consumers are becoming more resilient and pushing through high taxes and the impact of federal budget cuts. 

When sales levels move higher, small- and medium-sized retailers often run into the need to replenish inventory but can't do so on their own dime. If turned away for traditional financing by a bank, inventory financing could prove beneficial. 

July was another strong month for the consumer, with retail sales increasing for the fourth consecutive month, according to the U.S. Commerce Department. The 0.2 percent gain followed June's 0.6 percent increase, showing the retail industry has momentum. 

A few of the driving factors behind higher retail sales include employment gains and rising home values and stock prices – all of which are boosting household wealth. 

"Consumers are still able to go out there and spend despite headwinds from tax increases and the sequester," Omar Sharif, U.S. economist at RBS Securities, told Bloomberg. "Job growth is continuing at a moderate clip and we're making gradual headway."

Consumer spending up in June
It should come as no surprise that retail sales were higher in July, as consumer spending has been on the rise. The U.S. Department of Commerce revealed a 0.5 percent bump in June, which was in line with the expectations of economists surveyed by Bloomberg. 

One of the major factors that aided the jump in spending was income growth, which signals the U.S. economy is beginning to grow at an accelerated pace. 

Should this trend continue, small- and medium-sized retailers may see increased sales levels in the coming months as well. As a result, inventory financing demand may rise with these businesses attempting to keep shelves full. 

Asset-based lending is a good place to turn for retailers that were turned down by a bank for traditional financing. This can happen due to limited available capital or a poor credit score, among other things. Using inventory financing, small- and medium-sized retailers are able to obtain a revolving line of credit, which, in turn, can be utilized to purchase additional product to ensure shelves are never empty. 

Even if sales don't continue to pick up, inventory financing could prove to be beneficial, as the funds made available through the revolving line of credit can be used to cover operating expenses.