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Inventory Financing Loans: How They Work and Best Options

By Randa Kriss, Edited by Sally Lauckner | Last updated on January 27, 2023
Inventory financing is a good option for product-based businesses that may not be able to qualify for other loan options.

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Inventory financing is a type of small-business loan in which a lender provides you with capital to purchase products to sell. The products you buy serve as collateral on the financing, so you don’t always have to put up personal or other business assets to secure the loan.
Below, learn more about how inventory loans work and compare top options.

How much do you need?

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We’ll start with a brief questionnaire to better understand the unique needs of your business.

Once we uncover your personalized matches, our team will consult you on the process moving forward.

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Here are 6 inventory financing

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Lender
NerdWallet Rating
Max loan amount
Min. credit score
Next steps

SBA 7(a) loan

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Best for SBA inventory financing

$5,000,000650

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Credibility Capital - Online term loan

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4.5/5

Best for Online inventory loans for established businesses

$500,000650

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Bluevine - Line of credit

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5.0/5

Best for Inventory lines of credit

$250,000625

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OnDeck - Line of credit

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5.0/5

Best for Inventory lines of credit

$100,000625

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Fora Financial - Online term loan

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4.5/5

Best for Inventory loans for borrowers with bad credit

$1,400,000500

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Fundbox - Line of credit

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5.0/5

Best for Startup inventory financing

$150,000600

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Here are 6 inventory financing

Best for SBA inventory financing

U.S. Small Business Administration

Max Amount

$5,000,000

Min. Credit Score

650

Best for Online inventory loans for established businesses

Credibility Capital

Max Amount

$500,000

Min. Credit Score

650

Best for Inventory lines of credit

Bluevine

Max Amount

$250,000

Min. Credit Score

625

OnDeck

Max Amount

$100,000

Min. Credit Score

625

Best for Inventory loans for borrowers with bad credit

Fora Financial

Max Amount

$1,400,000

Min. Credit Score

500

Best for Startup inventory financing

Fundbox

Max Amount

$150,000

Min. Credit Score

600

Our pick for

SBA inventory financing

SBA 7(a) loans are issued by banks and credit unions and secured by the U.S. Small Business Administration. These loans have long terms and low interest rates but require strong credentials to qualify.

SBA 7(a) loan

Read Review

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Max Loan Amount
$5,000,000
Min. credit score
650
Est. APR
10.25-12.75%
7(a) program participants include specialized lenders like Live Oak Bank and big-name traditional banks like Wells Fargo.
Lowest interest rate

Max loan

$5,000,000

Min. Credit score

650

Apr range

10.25-12.75%

7(a) program participants include specialized lenders like Live Oak Bank and big-name traditional banks like Wells Fargo.
Read Review

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Our pick for

Online inventory loans for established businesses

Credibility Capital offers loans with competitive interest rates, but you’ll need multiple years in business to qualify.

Credibility Capital - Online term loan

4.5
NerdWallet rating 
Read Review

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Max Loan Amount
$500,000
Min. credit score
650
Est. APR
9.49-15.49%
Credibility Capital offers low-cost business loans that work best for small-business owners with strong credit.
4.5
NerdWallet rating 

Max loan

$500,000

Min. Credit score

650

Apr range

9.49-15.49%

Credibility Capital offers low-cost business loans that work best for small-business owners with strong credit.
Read Review

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Our picks for

Inventory lines of credit

These online lenders offer fast lines of credit and repayment terms up to 12 months. You may be able to qualify with a credit score of 625 or higher.

Bluevine - Line of credit

5.0
NerdWallet rating 
Read Review

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Max Loan Amount
$250,000
Min. credit score
625
Est. APR
20.00-50.00%
Bluevine's line of credit provides fast working capital for short-term borrowing needs.
May fund quickly
5.0
NerdWallet rating 

Max loan

$250,000

Min. Credit score

625

Apr range

20.00-50.00%

Bluevine's line of credit provides fast working capital for short-term borrowing needs.
Read Review

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OnDeck - Line of credit

5.0
NerdWallet rating 
Read Review

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Max Loan Amount
$100,000
Min. credit score
625
Est. APR
29.90-65.90%
OnDeck offers a fast line of credit for small-business owners with less-than-stellar credit who need to manage cash flow or buy inventory.
May fund quickly
5.0
NerdWallet rating 

Max loan

$100,000

Min. Credit score

625

Apr range

29.90-65.90%

OnDeck offers a fast line of credit for small-business owners with less-than-stellar credit who need to manage cash flow or buy inventory.
Read Review

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Our pick for

Inventory loans for borrowers with bad credit

Fora Financial offers inventory loans that can be used for a variety of purposes. You may be able to qualify with a credit score of 500 or higher.

Fora Financial - Online term loan

4.5
NerdWallet rating 
Read Review

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Max Loan Amount
$1,400,000
Min. credit score
500
Fora Financial can be a good fit for borrowers who may fall short of qualifying for traditional bank financing or young but established small businesses looking for speedy financing.
4.5
NerdWallet rating 

Max loan

$1,400,000

Min. Credit score

500

Fora Financial can be a good fit for borrowers who may fall short of qualifying for traditional bank financing or young but established small businesses looking for speedy financing.
Read Review

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Our pick for

Startup inventory financing

Fundbox provides short-term lines of credit with funding as fast as the next business day. You need only six or more months in business to qualify.

Fundbox - Line of credit

5.0
NerdWallet rating 
Read Review

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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.
May fund quickly
5.0
NerdWallet rating 

Max loan

$150,000

Min. Credit score

600

Apr range

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.
Read Review

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Minimum requirements for a loan

The Nerds are here to help you find the right loans for your business needs.

Credit Score

550 or higher

Annual Revenue

at least $50k

Time in Business

6 months or more

How Much Do You Need?

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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.
Because the value of inventory depreciates, 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 businesses in the retail, wholesale and manufacturing industries. It can help you:
  • 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.

Types of inventory financing

Lenders offer two types of inventory financing — inventory loans and inventory lines of credit. The right option will vary based on your business’s needs.

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 pay back only 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.
» MORE: Business loan vs. line of credit: Which is right for you?

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 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. Business loan rates can be high on this type of financing, especially if you have a lower credit score, have 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.

How to get inventory financing

You can get inventory financing from banks, credit unions and online lenders. 
Although banks and credit unions usually offer the most affordable funding, they are less likely to offer inventory financing (compared with other loan types) 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.
Online lenders, on the other hand, can offer flexible loan qualifications, fast funding and simple applications. These loans may be more expensive than bank or SBA loans.
Before you choose an inventory financing lender, you’ll want to research and compare several options to determine the best fit for your business. You’ll want to consider factors such as borrowing costs, repayment terms, funding speed, customer support and lender reputation.
Once you’ve found the right lender, you can start the application process. You’ll typically need to provide the following documents:
  • Business and personal bank statements.
  • Business and personal tax returns.
  • Business financial statements (e.g., profit and loss statement, balance sheet).
Lenders will likely require inventory-specific information as well. They may ask about your inventory turnover, sales projections and inventory management system.
» MORE: How to apply for a small-business loan

Alternatives to inventory financing

The best business loan is generally the one with the lowest rates and most ideal terms. But other factors — like time to fund and your business’s qualifications — can help determine which option you should choose.
For a look beyond inventory loans, check out NerdWallet’s list of the best small-business loans.
Last updated on January 27, 2023