Inventory financing pays for stock before the sales that will repay it: the seasonal buy, the bulk order that earns a discount, the supplier minimum, the restock after a strong month. The inventory financing we review is sized on your business's own deposits, not on an appraisal of what sits on the shelves, which keeps it fast and open to smaller businesses.
Two kinds of inventory financing
The term covers two quite different products:
- Inventory-secured lending. The stock itself is the collateral. The amount is a percentage of its appraised value, set by a borrowing base, and often comes with stock reporting and inspections. It suits larger wholesalers and distributors with significant stock and the systems to report on it.
- Deposit-based inventory funding. Working capital or a line of credit sized on your monthly deposits and used to buy stock. There is no stock appraisal and no inventory reporting, and decisions are faster. Most small businesses are better served here.
When it fits
- A supplier offers an early-order or volume discount that is worth more than the cost of funding it.
- The busy season is predictable, and stock has to be bought before it starts.
- A large order or contract needs materials up front.
- Stock sells through in weeks or months, so repayment comes from the inventory's own sales.
When it does not
Slow-moving or speculative stock is a poor use of short-term funding. If inventory might sit for a year, you are paying for money that is not working. The same goes for buying deeper to cover falling sales; extra stock does not fix weak demand. And if the account is already stretched by the last buy, a larger one makes it worse.
How it works
1. Size the buy. Order cost, freight and duties, and the weeks until it sells through.
2. Apply before the order. A soft credit pull and four months of business bank statements. Statements from before the supplier payment read stronger than statements drained by it.
3. Choose the shape. A one-off buy suits fixed working capital. A buy that repeats every month or season suits a line of credit: draw for each order, repay through sell-through, draw again.
4. Fund and repay. Funds land in the business account, and repayment runs from deposits as the stock sells.
What we look at
Average monthly deposits and their seasonal pattern, how quickly past stock purchases turned into deposits, ending balances, existing funding payments, and time in business. Seasonal dips are fine when they are explainable. Tell us when your season falls, and the statements are read in that context.
A worked example
A distributor banking $150,000 a month is offered 8% off a $60,000 order if it pays in full before the season. The discount is worth $4,800. Suppose, as an illustration only, funding $60,000 costs $6,000 over four months. Then the discount alone does not cover it, and the buy only makes sense if the extra stock also avoids a stock-out that would have lost more than $1,200 in margin. If the offer were 12% off, the discount alone would pay for the funding. Run both figures in dollars before ordering.
Inventory funding vs supplier terms
If a supplier offers net-30 or net-60 terms, use them first; trade credit is often the cheapest inventory financing there is. Funding is for what supplier terms do not cover: suppliers who want payment up front, deposits on overseas orders, early-pay discounts that beat the cost of funding, and buys too large for your current terms.
Guides by business type
Store owners should read retail inventory financing, which covers seasonal buying and open-to-buy budgets. Online sellers should read e-commerce inventory funding, which covers supplier deposits and marketplace payouts. Manufacturers should see funding production runs.
Read next: Retail inventory financing · E-commerce inventory funding · Wholesale to retail
Checking what inventory funding your business qualifies for takes about 60 seconds, uses a soft credit pull only, and costs nothing. There are no broker fees. Start an application or request a callback before your next big order.
Common questions
Do I need to put up my inventory as collateral?
Not for the funding we review. It is sized on your business's deposits, so there is no stock appraisal or inventory reporting. Inventory-secured lending, where the stock is collateral, is a separate product that usually suits larger distributors.
Can I use inventory financing for an overseas supplier deposit?
Yes. Funds land in your business account and can pay a deposit or a balance at shipment. Allow for the weeks the goods are in transit when you size the funding and its term.
Is a line of credit better than one-off funding for inventory?
If you restock on a regular cycle, often yes, because you draw only for each order and pay only while it is outstanding. For a single seasonal or bulk buy, one-off working capital is simpler.