Inventory financing provides businesses with capital to purchase products to sell. This type of financing is typically structured as a line of credit or short-term loan, and is secured by the products you purchase or by existing inventory.
Inventory financing can be a useful funding option for businesses in the retail, wholesale and manufacturing industries. It can help keep your shelves stocked during a busy season, or allow you to buy products in bulk at a discount.
Below, you’ll find our picks for the best inventory loans and lines of credit, as well as tips on how to decide if inventory financing is right for your business.
How Much Do You Need?
Summary of Inventory Financing Loans: Compare Best Options of February 2022
| Lender | Best For | Max Loan Amount | Min. Credit Score | Next Steps |
|---|---|---|---|---|
Fundbox - Line of credit See Your Loan Options with Fundera by Nerdwallet | Best for Short-term inventory lines of credit | $150,000 | 600 | See Your Loan Options with Fundera by Nerdwallet |
BlueVine - Line of credit See Your Loan Options with Fundera by Nerdwallet | Best for Long-term inventory lines of credit | $250,000 | 600 | See Your Loan Options with Fundera by Nerdwallet |
SBA 7(a) loan See Your Loan Options with Fundera by Nerdwallet | Best for Inventory loans backed by the government | $5,000,000 | 650 | See Your Loan Options with Fundera by Nerdwallet |
Credibility Capital - Online term loan See Your Loan Options with Fundera by Nerdwallet | Best for Inventory loans for businesses with strong credit | $500,000 | 650 | See Your Loan Options with Fundera by Nerdwallet |
OnDeck - Online term loan See Your Loan Options with Fundera by Nerdwallet | Best for Inventory loans for businesses with bad credit | $250,000 | 600 | See Your Loan Options with Fundera by Nerdwallet |
Our pick for
Short-term inventory lines of credit
See Your Loan Options
with Fundera by Nerdwallet
Fundbox - Line of credit
See Your Loan Options
with Fundera by Nerdwallet
Max Loan Amount
$150,000
Min. Credit Score
600
Est. APR
10.10-79.80%
Fundbox offers a business line of credit to fill a cash-flow gap, and qualifying is easier than with other lenders.
Pros
- Financing available within one business day after approval.
- Simple application with minimal documentation required.
- Startup-friendly—accepts borrowers with a minimum of six months in business.
- Low minimum credit score requirement.
- No prepayment penalties, account maintenance fees or inactivity fees.
Cons
- Rates are high compared to traditional banks.
- May require personal guarantee.
- Can’t be used to build business credit.
- Weekly repayments required over a short term (maximum of 24 weeks).
Qualifications:
- Minimum credit score: 600.
- Minimum time in business: 6 months.
- Minimum annual revenue: $100,000.
May fund quickly
Our pick for
Long-term inventory lines of credit
See Your Loan Options
with Fundera by Nerdwallet
BlueVine - Line of credit
See Your Loan Options
with Fundera by Nerdwallet
Max Loan Amount
$250,000
Min. Credit Score
600
Est. APR
15.00-78.00%
BlueVine's line of credit provides fast working capital for short-term borrowing needs.
Pros
- Cash can be available within 12 to 24 hours.
- Multiple term lengths for different financing needs.
- Low minimum credit score requirement.
- Startup-friendly; accepts borrowers with a minimum of six months in business.
Cons
- May require weekly repayments.
- Requires personal guarantee.
- Not available in North Dakota, South Dakota or Vermont.
- Rates can be high compared to traditional lenders.
Qualifications:
- Minimum credit score: 600.
- Minimum time in business: 6 months.
- Minimum annual revenue: $120,000.
May fund quickly
Our pick for
Inventory loans backed by the government
See Your Loan Options
with Fundera by Nerdwallet
SBA 7(a) loan
See Your Loan Options
with Fundera by Nerdwallet
Max Loan Amount
$5,000,000
Min. Credit Score
650
Est. APR
5.50-8.00%
7(a) program participants include specialized lenders like Live Oak Bank and big-name traditional banks like Wells Fargo.
Pros
- Available as a term loan or line of credit.
- Interest rates are capped.
- Long repayment terms available.
Cons
- Personal guarantee is required.
- Collateral is typically required.
- Longer processing times than online lenders.
Qualifications:
- Be a for-profit U.S. business.
- Must first use alternative financial resources, including personal assets.
- Financial qualifications determined by individual lender.
Lowest interest rate
Our pick for
Inventory loans for businesses with strong credit
See Your Loan Options
with Fundera by Nerdwallet
Credibility Capital - Online term loan
See Your Loan Options
with Fundera by Nerdwallet
Max Loan Amount
$500,000
Min. Credit Score
650
Est. APR
6.99-24.99%
Credibility Capital offers low-cost business loans that work best for small-business owners with strong credit.
Pros
- Competitive rates among online lenders.
- No prepayment penalty.
- Extra monthly payments can save interest cost.
Cons
- Requires high minimum credit score and revenue.
- Requires business lien and may require personal guarantee.
- Not available in Nevada, North Dakota, South Dakota or Vermont.
Qualifications:
- Minimum credit score: 650.
- Minimum time in business: 2 years.
- Minimum annual revenue: $200,000.
- No bankruptcies in the past 5 years.
Our pick for
Inventory loans for businesses with bad credit
See Your Loan Options
with Fundera by Nerdwallet
OnDeck - Online term loan
See Your Loan Options
with Fundera by Nerdwallet
Max Loan Amount
$250,000
Min. Credit Score
600
Est. APR
9.00-99.00%
OnDeck offers a fast term loan for small-business owners with less-than-stellar credit who want to expand.
Pros
- Cash can be available within the same business day.
- Requires low minimum credit score.
- Less paperwork than most lenders.
Cons
- Fixed-fee structure means early repayment will not save interest.
- Requires frequent (daily or weekly) repayments.
- Requires business lien and personal guarantee.
Qualifications:
- Minimum credit score: 600.
- Minimum time in business: 1 year.
- Minimum annual revenue: $100,000.
- No bankruptcies in the past 2 years.
May fund quickly
How Much Do You Need?
What is inventory financing?
Inventory financing is a form of asset-based funding in which a lender provides you with capital to purchase products to sell. The products you purchase serve as collateral on the financing, so you don’t always have to put up personal or other business assets to secure the loan.
How does inventory financing work?
Inventory financing is a line of credit or term loan that is based on the value of the inventory you want to buy. Although you may ask for a loan amount equal to the total cost of the inventory you’d like to purchase, many lenders will offer you only a percentage of the inventory’s value. This could be as little as 20% or as much as 80% depending on the type of inventory and the lender itself.
Because the value of inventory depreciates over time, offering only a percentage of the loan amount asked for mitigates risk for the lender if you default on the loan and they need to sell off your inventory to recover their losses.
Inventory financing can be a good funding option for:
- Purchasing inventory to prepare for your busy season.
- Covering short-term cash flow gaps.
- Buying additional stock to meet increased customer demand.
- Updating product offerings or launching new products.
Types of inventory financing
There are two types of inventory financing: inventory loans and inventory lines of credit. Although the two have separate structures and may be better suited for different purposes, both types are secured by the inventory you’re looking to purchase.
Inventory loans
Inventory loans are structured like traditional term loans, in which you receive a specific amount of capital and pay it back, with interest, over a period of time. Term loans may have higher borrowing amounts and longer repayment periods, making them a better choice for financing large, one-time inventory purchases.
Inventory lines of credit
Inventory lines of credit give you access to a set amount of money that you can tap into as needed — and you only pay back what you’ve borrowed. These credit lines are often revolving, meaning once you’ve paid back what you’ve borrowed, you again have access to the maximum approved amount and don’t need to continuously reapply for funding.
Lines of credit offer more flexibility than term loans and work best for financing ongoing inventory purchases.
Pros and cons of inventory financing
Pros
- Self-collateralizing. You may not need to rely as much on personal credit, time in business or other forms of collateral to qualify for financing.
- Good for sales. Inventory financing can be used to meet an increased customer demand, prepare for a busy season or upgrade a product line.
- Easy application process. If your inventory records are organized, it can be quick and easy to apply for this type of financing — especially when working with an online lender.
Cons
- Limited loan amounts. Lenders will typically offer only a percentage of the total cost of the inventory you’re looking to purchase.
- Expensive. Interest rates can be higher on this type of financing, especially if you have a lower credit score, less time in business or aren’t using other assets to secure the loan. Although your business still may be able to qualify, the cost of borrowing will be much higher.
Where to get inventory financing
Banks and credit unions
Although banks and credit unions offer some of the most affordable small-business loans, they are less likely to offer inventory financing than other types of business funding because of the riskiness of inventory loans. Many traditional financial institutions do, however, offer SBA loans, which can be used as a form of inventory financing.
SBA loans have long terms and low interest rates, and they allow you to use inventory as collateral. Similar to bank loans, SBA loans require that you have good credit (FICO score of 690+), strong annual revenue and several years in business to qualify.
Online lenders
Online lenders can offer access to inventory financing with more flexible qualifications than SBA loans. Some online lenders will work with new businesses or businesses with bad credit.
Many online lenders have simple application processes, with funding available in as little as 24 hours. However, these loans are typically going to be more expensive than SBA loans, with shorter terms and faster repayment schedules.
Alternatives to inventory financing
For a look beyond inventory loans, check out NerdWallet’s list of best small-business loans for business owners. Our recommendations are based on the market scope and track record of lenders, the needs of business owners, and an analysis of rates and other factors, so you can make the right financing decision.
Last updated on October 25, 2021
To recap our selections...
Inventory Financing Loans: Compare Best Options of February 2022
- Fundbox - Line of credit: Best for Short-term inventory lines of credit
- BlueVine - Line of credit: Best for Long-term inventory lines of credit
- SBA 7(a) loan: Best for Inventory loans backed by the government
- Credibility Capital - Online term loan: Best for Inventory loans for businesses with strong credit
- OnDeck - Online term loan: Best for Inventory loans for businesses with bad credit