ST. LOUIS — UMB Bank St. Louis is increasing lines of credit to companies as suppliers want them to carry more inventory at a time when inflation is “white hot and very strong,” President Peter Blumeyer said.
Blumeyer said inflation is affecting businesses of all sizes as they grapple with twin challenges: increasing inventory after months of demand for goods outpaced supply and labor costs spiked because of the nationwide worker shortage.
“Demand jumped quite significantly coming through the pandemic toward what hopefully is the ‘getting to normalcy here’ and supply was not ready for that jump.
“Input costs are significantly higher than they were a year ago. With that, all the raw materials that go into their product if they’re a manufacturer significantly cost more. If you’re a distributor, the inventory that you’re purchasing significantly costs more and all of that is causing a lot of pressure on their working capital position,” Blumeyer told the Business Journal.
Before the coronavirus pandemic began in 2020, businesses followed a “just-in-time inventory” approach. Supply-chain disruptions triggered by the delta and omicron variants have led to lower inventory, but now that COVID-19 case numbers are dropping, companies are reacting to higher customer demand by boosting inventory.
“It’s causing working capital pressure and so to help offset that, for our customers we have been increasing their working capital lines of credit to carry this additional inventory and to manage through the higher costs,” he said.
The increase in businesses seeking higher lines of credit began about six months ago, Blumeyer said.
“We can see it because every week we are having customers say if they have a million dollar line of credit, they’re coming to us and saying, ‘Hey, we need a $2 million line of credit because my largest supplier is asking me to carry another $800,000 of inventory to meet demand,” he said.
Businesses need to monitor their inventory levels to make sure they aren’t caught with too much if an economic slowdown occurs, Blumeyer said.
Read the full story on the St. Louis Business Journal website.
