Inventory financing

What is inventory financing?

The lender advances money against inventory you own or are about to buy, and takes a lien on it. Structures vary: a short term loan to fund one seasonal buy, a revolving line with a borrowing base updated monthly, or a floor plan where the lender pays the supplier directly and you repay each unit as it sells, common for vehicle and equipment dealers.

What the lender advances depends on how easily it could sell the stock itself. Branded, finished, nonperishable goods with a wholesale market get the highest rates; raw materials, custom products and anything with an expiry date get far less. For larger, mixed collateral, see asset based lending.

Who qualifies for inventory financing?

Most lenders want a year or more in business, $250,000 or more in annual sales, inventory records that show cost, quantity and turnover by item, and stock that turns at least a few times a year. Owner credit of 600 to 650 is usually enough because the goods are the collateral. Retail, wholesale, ecommerce and dealers are the core markets.

• Declined most often: perishable or fashion goods with short shelf lives, inventory that cannot be counted or valued, turnover under two times a year, and stock already pledged to a supplier or another lender.
• If you need money for a specific seasonal buy, read financing for buying inventory first.

What does inventory financing really cost?

A typical example: you hold $200,000 of inventory at cost and a lender advances 60%, so $120,000, for six months at 15% APR. Interest is about $9,000. An origination fee of 1% to 3% adds $1,200 to $3,600, and an inventory inspection at $500 to $2,000 brings the total to roughly $11,000 to $14,000 for six months of use.

Compare that with the discount you are capturing or the sales you would otherwise miss. A 10% volume discount on a $200,000 order is $20,000, which justifies the cost; financing stock that will sit for a year does not. Use the business loan calculator to check both sides.

How do you qualify, and what documents do you need?

Expect two years of tax returns, interim financials, three to six months of bank statements, a current inventory listing by item with cost and quantity, 12 months of sales by month, your supplier terms, and purchase orders for the stock you plan to buy. Lenders may inspect your warehouse or store before closing and periodically after.

Our document checklist covers the standard items. The inventory report is what matters most: lenders want to see turnover by item, because they will exclude anything that has not sold in 90 to 180 days. An inventory system that tracks that, even a simple one, is worth setting up before you apply.

How long does inventory financing take?

Typically one to six weeks. Online lenders that connect to your ecommerce platform and bank can fund a short inventory loan in days. Banks and asset based lenders take four to six weeks because of the inspection and the legal work on a borrowing base line.

Plan around your buying calendar. Seasonal retailers who apply in a quiet month and close before the order deadline get the best terms; those who apply the week the supplier invoice is due usually end up with an expensive short term loan instead. See how long business loans take for each lender type.

When should you choose something else?

Choose purchase order financing if the stock is for a specific confirmed customer order, because the lender funds the supplier directly and the order itself is the repayment. Choose a line of credit if your business qualifies for one, since it costs less and does not require inventory audits.

Avoid inventory financing to carry stock that is not selling. The lender will exclude it from the borrowing base within months, and you will be left paying interest on goods you should have discounted and cleared.

How do you apply for inventory financing?

Apply once on this site with your inventory report and your application reaches inventory lenders, asset based lenders and lines of credit that fit your sales volume, so you can compare an inventory structure with a plain line. It is free for your business, and we are paid the same whichever lender you choose. You can also ask your AI assistant to apply through our MCP server; it reads your reports and statements, fills the application and submits it.