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Inventory Financing Loans: How They Work and Best Options

By Randa Kriss
Last updated on March 15, 2024
Edited byChristine Aebischer
Fact checked and reviewed

⏰ Estimated read time: 7 minutes

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 inventory serves as collateral for the loan, making this financing a type of asset-based lending. Inventory financing can be helpful for inventory-heavy businesses that are struggling with cash flow.
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.

Here are 6 inventory financing loans

LenderNerdWallet RatingMax loan amountMin. credit scoreNext steps

SBA 7(a) loan

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Best for SBA Inventory Financing

$5,000,000650

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Bluevine - Line of credit

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5.0/5

Best for Fast inventory line of credit

$250,000625

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OnDeck - Line of credit

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5.0/5

Best for Inventory line of credit for startups

$100,000625

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Fora Financial - Online term loan

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4.5/5

Best for Inventory loan for borrowers with bad credit

$1,500,000500

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Fundbox - Line of credit

5.0/5

Best for Startup inventory financing

$150,000600

American Express® Business Line of Credit

5.0/5

Best for Businesses with low revenue

$250,000660

Here are 6 inventory financing loans

Best for SBA Inventory Financing

U.S. Small Business Administration

Max Amount

$5,000,000

Min. Credit Score

650

Best for Fast inventory line of credit

Bluevine

Max Amount

$250,000

Min. Credit Score

625

Best for Inventory line of credit for startups

OnDeck

Max Amount

$100,000

Min. Credit Score

625

Best for Inventory loan for borrowers with bad credit

Fora Financial

Max Amount

$1,500,000

Min. Credit Score

500

Best for Startup inventory financing

Fundbox

Max Amount

$150,000

Min. Credit Score

600

Best for Businesses with low revenue

American Express Business Blueprint™

Max Amount

$250,000

Min. Credit Score

660

I'M INTERESTED IN:

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

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Max Loan Amount
$5,000,000
Min. credit score
650
Est. APR
11.50-15.00%
7(a) loans are issued by private lenders and backed by the SBA. They offer long repayment terms and low interest rates.
Lowest interest rate

Max loan

$5,000,000

Min. Credit score

650

Apr range

11.50-15.00%

7(a) loans are issued by private lenders and backed by the SBA. They offer long repayment terms and low interest rates.

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Our pick for

Fast inventory line of credit

BlueVine offers 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

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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

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.

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Our pick for

Inventory line of credit for startups

OnDeck offers lines of credit for businesses that have been operating for one year and have at least $100,000 in annual revenue.

OnDeck - Line of credit

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Max Loan Amount
$100,000
Min. credit score
625
Est. APR
39.90-77.90%
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

Max loan

$100,000

Min. Credit score

625

Apr range

39.90-77.90%

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.

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Our pick for

Inventory loan 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

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Max Loan Amount
$1,500,000
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.

Max loan

$1,500,000

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.

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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

Max Loan Amount
$150,000
Min. credit score
600
Est. APR
36.00-99.00%
Fundbox offers a business line of credit to fill a cash flow gap, and qualifying is easier than with other lenders.
May fund quickly

Max loan

$150,000

Min. Credit score

600

Apr range

36.00-99.00%

Fundbox offers a business line of credit to fill a cash flow gap, and qualifying is easier than with other lenders.

Our pick for

Businesses with low revenue

The American Express Business Blueprint Line of Credit offers lines up to $250,000 for businesses who have been operating for at least a year with average monthly revenue of at least $3,000.

American Express® Business Line of Credit

Max Loan Amount
$250,000
Min. credit score
660
The American Express® Business Line of Credit is a good option for business owners with fair credit who want access to working capital.

Max loan

$250,000

Min. Credit score

660

The American Express® Business Line of Credit is a good option for business owners with fair credit who want access to working capital.

How Much Do You Need?

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What is inventory financing?

Inventory financing is a loan for purchasing products that your business plans to sell. The inventory you buy serves as collateral on the financing, so you don’t always have to put up personal or other business assets to secure the loan. Inventory loans function similarly to regular small-business term loans or lines of credit.
Inventory financing is a good option for inventory-heavy businesses like retailers or wholesalers, seasonal businesses, borrowers with bad credit or businesses that lack other substantial assets.

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 help your business:
  • 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.

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 inventory financing, since the inventory itself serves as collateral.
  • 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.
  • Not all inventory is the same. To qualify for inventory financing, the products you plan to buy need to be nonperishable, and should hold value for at least the length of your loan. 

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. 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.

Alternatives to inventory financing

If you’re having trouble finding or qualifying for inventory financing, there are other options to consider:
  • Invoice financing or factoring: Both invoice financing and invoice factoring can help cover gaps in cash flow by advancing money on your unpaid customer invoices. With invoice financing, your unpaid invoices serve as collateral on a loan until your customer pays you. With factoring, a company purchases your unpaid invoices at a discount, and takes over collecting the money from your customers. 
  • Business credit card: Similar to a line of credit, a business credit card is a revolving line that only charges interest on money you have spent on the card. As you pay down the card, you can spend money on it again. 
  • Purchase order (PO) financing: Similar to inventory financing, purchase order financing is a lump sum of money that can be used to cover cash flow gaps. While inventory financing can be used for general inventory needs, however, PO financing is tied to the needs of a specific purchase order. 
  • Equipment financing. If your business is not inventory-heavy, but you want a self-collateralizing loan option, equipment financing allows you to purchase business equipment and use it to secure your loan. 

Find the right business loan

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. NerdWallet recommends comparing small-business loans to find the right fit for your business.
Last updated on March 15, 2024

Methodology

NerdWallet’s review process evaluates and rates small-business loan products from traditional banks and online lenders. We collect over 30 data points on each lender using company websites and public documents. We may also go through a lender’s initial application flow and reach out to company representatives. NerdWallet writers and editors conduct a full fact check and update annually, but also make updates throughout the year as necessary.
Our star ratings award points to lenders that offer small-business friendly features, including: transparency of rates and terms, flexible payment options, fast funding times, accessible customer service, reporting of payments to business credit bureaus and responsible lending practices. We weigh these factors based on our assessment of which are the most important to small-business owners and how meaningfully they impact borrowers’ experiences.
NerdWallet does not receive compensation for our star ratings. Read more about our ratings methodology for small-business loans and our editorial guidelines.

Wondering if you qualify?

It’s possible to get a business loan even if you have bad credit. Bad-credit business loans are available from alternative sources, like online or nonprofit lenders.

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