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Inventory Financing Loans: Compare Best Options of December 2021

Inventory financing can help your small business purchase products to meet customer demand. Compare inventory lines of credit and term loans.
Randa KrissOctober 25, 2021
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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.

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LenderBest ForEst. APRMin. Credit ScoreNext Steps

Fundbox - Line of credit

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Best for Short-term inventory lines of credit10.10-79.80%600
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BlueVine - Line of credit

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Best for Long-term inventory lines of credit15.00-78.00%600
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SBA 7(a) loan

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Best for Inventory loans backed by the government5.50-8.00%650
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Credibility Capital - Online term loan

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Best for Inventory loans for businesses with strong credit6.99-24.99%650
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OnDeck - Online term loan

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Best for Inventory loans for businesses with bad credit9.00-99.00%600
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Summary of Inventory Financing Loans: Compare Best Options of December 2021

Our pick for

Short-term inventory lines of credit

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Fundbox - Line of credit

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Est. APR

10.10-79.80%

Min. Credit Score

600

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

Pros

  • Cash can be available by the next day.
  • Low minimum credit score requirement.

Cons

  • Rates are high compared to traditional banks.
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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

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BlueVine - Line of credit

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Est. APR

15.00-78.00%

Min. Credit Score

600

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.

Cons

  • Short repayment term results in higher payment amounts.
  • Requires personal guarantee.
  • Not available in North Dakota, South Dakota or Vermont.
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Qualifications:

  • 6-month line of credit:
  • Minimum credit score: 600.
  • Minimum time in business: 6 months.
  • Minimum annual revenue: $120,000.
  • 12-month line of credit:
  • 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

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SBA 7(a) loan

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Est. APR

5.50-8.00%

Min. Credit Score

650

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.
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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

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Credibility Capital - Online term loan

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Est. APR

6.99-24.99%

Min. Credit Score

650

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.
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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

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OnDeck - Online term loan

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Est. APR

9.00-99.00%

Min. Credit Score

600

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.
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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

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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 December 2021

Does your business need funding? Find your best loan options with Fundera by NerdWallet.

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