How medical supply companies purchase inventory with business loans

Medical supply companies can be very profitable. Some medical supply companies specialize in B2B sales, selling to hospitals, nursing homes, or medical practices, for example. Others have retail stores where they sell to the general public. And a few do a combination of the two. 

Regardless, the investment in inventory can be steep. Medical devices, medical equipment are expensive. And even low-cost, high-turnover items like PPE (masks, gowns and gloves) can require a significant investment in inventory to meet demand. 

If your medical supply business needs financing to purchase inventory, financing options may include:

• Term Loans
• Lines of Credit
• SBA Loans
• Equipment Loans
• Inventory Loans

Each of these funding options may play a role in financing your medical supply business at various times in your business journey.

Term Loans For Medical Supply Companies

Term loans are a popular small business loan option. They allow businesses to borrow a specific amount of money and pay it back over a fixed repayment period. Monthly payments are common, but short-term loans may require more frequent payments, including weekly payments. 

A short-term loan may be ideal for inventory purchases when fast turnover is expected. These loans are typically less than two years and for relatively smaller amounts, although qualified borrowers may be able to access larger sized loans. Unfortunately, because these loans are short term, and some may have lower qualification requirements, they may come with higher interest rates. 

Term loans may come from traditional lenders like banks or credit unions, as well as from online lenders. Online business loans are often faster and easier to qualify for than bank loans, but may carry higher costs. 

Lines of Credit

Business lines of credit are often a popular choice for financing inventory as well as regular working capital needs. Once approved, the business can access funds as needed (up to the credit limit), repay the loan after inventory is sold, and do that again and again. 

Similar to term loans, a line of credit may be available to your business through your commercial bank or credit union, but many online lenders also offer lines of credit with very fast funding. 

SBA Loans

The term “SBA loan” can be confusing because there are nearly a dozen different types of SBA loans. And to further confuse things, the US Small Business Administration doesn’t make loans (except for Disaster Loans) but instead guarantees loans made by participating lenders. 

That said, medical supply businesses (and other medical businesses) may be able to qualify for SBA loans such as 7(a) loans, Express Loans, or 504 Loans. However, not all SBA lenders choose to lend to medical supply businesses, so make sure you are working with one that understands your business and has a successful track record with businesses like yours. 

Equipment Loans For Medical Supply Companies

Medical equipment financing is often aimed at healthcare businesses that want to acquire new equipment for use in their own business; say a hospital, nursing home or dentist that wants a new X-ray machine. In that scenario, medical professionals aren’t going to lease a machine they plan to resell to a customer.  

And because equipment financing often results in a UCC-filing (a public lien on the property), it can be difficult to try to get financing secured by equipment you plan to turn around and sell quickly. 

For that reason, you’ll want to make sure that if you are talking with a leasing company about equipment financing that they understand you’ll resell the equipment rather than keep it for your own long-term use. 

Inventory Financing

It may be possible to secure a loan using inventory. Accounts receivable and inventory financing (ARIF) is a common type of collateral-based commercial lending used by manufacturers, wholesalers, distributors, retailers, and importers. 

This type of financing is considered somewhat higher risk. While the inventory serves as collateral, no lender wants to have to repossess and dispose of medical equipment or supplies. To do so would be expensive and difficult. 

Lenders want to ensure the business has the ability to turn that inventory into cash to repay financing, and the inventory serves as an incentive to make sure they repay the loan as promised. 

That means, the inventory isn’t the sole qualification for the loan. There will likely still be credit checks and the lender or financing company will often verify business cash flow. 

How to Qualify for Medical Supply Business Loans

Lenders will often look at the following factors when evaluating your small business for a loan or financing: 

• Revenues
• Time in business
• Credit 

Lenders want to be relatively confident that the business has the cash flow needed to repay financing, and will often do that by reviewing business bank account statements. Be prepared to show the last 3—6 months of business checking statements. Traditional lenders, like banks, may also require copies of tax returns. 

Most lenders prefer to work with businesses that have been in business for at least two years, though some will work with newer businesses provided other qualifications are strong.

Lenders may require a personal credit check and good personal credit scores, and/or a clean business credit history. (Here’s how to establish business credit.)

Frequently Asked Questions About Business Loans for Medical Supply Companies

What Collateral Is Required For Inventory Funding For A Medical Supply Company?

Collateral is something your business owns that you promise to hand over to a lender in the event that you can’t or don’t pay back your loan. Not every loan requires collateral, but most do, especially when the loan is for a larger amount of money. 

Collateral for a business loan can come in a variety of forms, including inventory, real estate or even cash. 

A personal guarantee may also help assure a lender the business owner will repay the loan, though PGs aren’t always required— especially for larger businesses or those with an extensive credit history. 
When collateral is pledged for a business loan the lender will typically file a UCC-filing which lets others know about the lien against the property of the business. UCC filings help lenders protect their interest in the collateral. 

Can Medical Supply Companies Use Merchandise Inventory Be Used As Security For A Loan?

Wheelchairs, beds, CPAP machines and other medical supplies can be expensive. Even relatively lower-cost items like diabetic products or shoe inserts can add up quickly. One way to finance inventory is to use that inventory as partial collateral for the loan. 

Can Medical Supply Companies Use Business Credit Cards for Inventory? 

Business credit cards can be an effective business financing solution to pay for inventory. Most small business credit cards offer an underlying line of credit that allows the business to finance purchases. Businesses that can pay balances off in full before the due date can avoid interest. In addition, some small business credit cards offer 0% APR financing for 6—18 months, which can be a way to finance these purchases interest-free.