All Business Assets: Inventory
August 27, 2018 - By:

By Kevin W. Goyette

ABA: Inventory – Series 1:


Prior to joining Cobblestone Management, LLC I worked for a few of our nation’s largest retail and industrial liquidators. Part of my responsibilities included reviewing inventory of our nation’s top retail big box retailers; inspecting raw materials, work-in-process, and finished goods of manufacturing facilities; and personally, walking distribution warehouses in the United States and Canada.

From this series my hope is to share my knowledge of valuing and monetizing inventory in a meaningful way that can help Credit Officers, Lenders, Portfolio Managers, and/or Credit Analysts: uncover hidden value, prepare clear exit strategies, or avoid expensive hidden costs incurred when forced to consider how your bank or credit union may best monetize collateral.

During an average loan review, we look at collateral coverage and loan to value as part of our review.  During reviews there are some areas that could have more clarity, specifically when looking at inventory as collateral.

From my experiences, I have developed a perspective regarding collateral and lending that you may find helpful when your reviewing your own loan’s inventory collateral.

In this ABA-Inventory series I want share my views specifically about inventory. I will leave all other types of ABA outside of this series (i.e. equipment, intangible assets, investments, prepaid expenses, accounts receivable etc.).

Lending Opportunities Born in New Technology

Why discuss inventory in detail at all, why not leave that to the big ABL lenders?  To me the answer is in the development of new technology. Today, more than any other time in history, a small business can choose from hundreds of inventory management software providers. For example: Fishbowl is the #1 business automation platform for QuickBooks. Fishbowl ties QuickBooks platform for accounting to advanced inventory features such as: multiple locations, part tracking, manufacturing, shipping integration, LIFO/FIFO/Standard accounting methods, landed costs, consignment, and wireless barcoding system for warehouses. EDI[1], shopping cart, merchant services–etc.

See more examples from this list of top inventory management software providers compiled by Capterra a site dedicated to help businesses find useful software.

By better understanding inventory, community banks, regional banks and credit unions can hopefully better leverage new developments in technology that provide small businesses the ability to run micro-enterprise systems which can track sales, profitability and inventory management with clear timely and reliable reporting.  These businesses need local lenders that support and understand their business inventory needs and can change, like the businesses they serve, season by season.  New technology provides local lenders the ability to efficiently monitor inventory collateral like large Asset Based Lenders. New technology in the form of small business software that can run a big business inventory management system but on the small business budget is the opportunity for both the lender and the borrower.


In general, good clear and reliable reporting is key.  With it in hand, it becomes simple to manipulate the data to obtain a meaningful information which an institution can be developed to use for advances.   Good reports tell us if the inventory mix is slow moving and highly profitable or fast moving with tight margins and much more

Reporting can be garbage too.  Especially if the business is not vigilant in what is coming and going, damaged or returned. Several ways reporting accuracy is maintained and managed is by cycle counts, physical counts, reserves and regular write-offs can also be added to help insure your reviewing accurate reports.


One advance rate may not fit all inventories, even identical inventories managed by different businesses may require different advance rates. Exceptions may apply but with these changing times a dynamic advance rate can be developed using new reporting details usually reserved for larger businesses.   Drilling into the newly available data can help you better understand the various pools of inventory collateral you have with the businesses within your community. By dedicating a relatively small amount of time these reports can tell you what you need to know to achieve a competitive advantage over big banks.


In series 2, we’ll dive some basic questions you’ll be looking to get answered.

Remember you can contact Cobblestone Management to review your existing borrowers’ and new prospects’ inventories for an in-depth inventory review or inventory appraisal.

[1] Electronic Data Interchange (EDI) is the electronic interchange of business information using a standardized format; a process which allows B2B information be shared electronically.