Inventory Financing: A Guide for Small Businesses

If your business needs more stock, but lacks the capital to buy it, inventory financing can be a helpful solution. By using your inventory as collateral, you can access funds to restock, prepare for seasonal demand or take advantage of supplier discounts — without putting other assets on the line.

What is inventory financing?

Inventory financing is a small-business loan that helps you buy the products or materials you need to make and sell your goods.

Inventory financing can be easier to qualify for than more traditional loan options — the inventory you buy serves as collateral on the financing, which means you may not have to put up additional business assets to secure the loan.

You can use inventory financing to:

• Purchase inventory to prepare for your busy season.

• Cover short-term cash flow gaps.

• Buy additional stock to meet increased customer demand.

• Update product offerings or launch products.

• Purchase products in bulk at a discount.

How does inventory financing work?

Types of inventory financing

Inventory financing can be structured as term loans or lines of credit. The right option for your business will depend on your specific needs.

Inventory loans

• Best for: Large, one-time inventory purchases.

• Typical APR: 14% to 99%.  

• Repayment terms: Six months to seven years.   

• Funding speed: One day to several weeks, depending on the lender.

How it works: An inventory loan functions like a traditional term loan. You receive a lump sum of capital and pay it back, with interest, over a set period of time. These loans often have higher borrowing amounts and longer repayment terms, making them ideal for big, one-time inventory purchases — like preparing for a busy season or launching a new product line.

Inventory lines of credit

• Best for: Ongoing inventory needs.

• Typical APR: 10% to 99%. 

• Repayment terms: Six to 24 months. 

• Funding speed: Same day to several weeks, depending on the lender.

How it works: An inventory line of credit gives you flexible access to funds that you can tap into as needed. You only pay interest on what you borrow, and once you repay the balance, the funds become available again — similar to the way a credit card works. This makes lines of credit a good option for regular restocking or unpredictable demand.

6 best inventory financing loans

» MORE: Business loans for bad credit

Pros and cons of inventory financing

How to get inventory financing

1. Review your qualifications

Evaluating your business credentials ahead of time can help you better direct your financing search.Most lenders will use your personal credit score, time in business and annual revenue to underwrite your loan application. For inventory financing, they’ll also consider the value of the inventory you’re looking to purchase, as well as any additional collateral you can offer.

Although banks and credit unions typically provide the most competitive rates and terms, you’ll likely need good credit, strong finances and multiple years in business to get funding. Online lenders, on the other hand, are usually more flexible with their qualification requirements. These lenders may work with startups or borrowers with bad credit — but they’ll charge higher interest rates.

2. Compare inventory financing options

You’ll want to research several inventory financing options to determine which one is the best fit for your business. Compare factors such as:

• Repayment terms. Inventory loans often have short repayment terms and may require frequent (daily or weekly) payments. You should make sure that you can afford to repay any potential debt before taking it on.

• Interest rates and fees. Inventory financing may be more expensive than traditional bank or SBA loans. You’ll want to ensure that you understand what the rates and fees are and how they’re charged. If a lender quotes interest as a factor rate, it’s helpful to calculate it into an annual percentage rate to get a better sense of the loan cost.

• Collateral requirements. Some lenders may require you to secure your loan with additional business assets. You’ll want to double check these types of requirements — and determine if you can meet them — before you apply.

• Funding speed. You may be able to get inventory financing from an online lender within 24 hours of approval. Some of these lenders charge higher rates, however, so consider if speed is worth the additional cost.

3. Gather documentation and apply

The business loan application process will vary by lender, but you’ll typically need to provide documentation such as:

• Business and personal bank statements.

• Business and personal tax returns.

• Business financial statements (e.g., profit and loss statement, balance sheet).

• Current inventory list.

• Sales records and projections.

Lenders may ask for a third-party appraisal to assess the value of the inventory you’re looking to purchase. They may also ask about your inventory turnover and inventory management system.

After you submit your application and receive approval, you may get access to funds as quickly as the same day — depending on your lender. Before signing the business loan agreement, however, you’ll want to review it to make sure the terms and rates are correct, and you’re clear about any penalties or fees.

Alternatives to inventory financing

If you’re having trouble finding or qualifying for inventory financing, there are other options to consider: