Guide to Inventory Financing for Small Businesses
Many, or all, of the products featured on this page are from our advertising partners who compensate us when you take certain actions on our website or click to take an action on their website. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.
Why trust NerdWallet
250+ small-business products reviewed and rated by our team of experts.
80+ years of combined experience covering small business and personal finance.
50+ categories of the best business loan selections.
Objective and comprehensive business loans ratings rubric. (Learn more about our star ratings.)
NerdWallet's small-business loans content, including ratings, recommendations and reviews, is overseen by a team of writers and editors who specialize in business lending. Their work has appeared in The Associated Press, The Washington Post, MarketWatch, Nasdaq, Entrepreneur, ABC News, MSN and other national and local media outlets. Each writer and editor follows NerdWallet's strict guidelines for editorial integrity to ensure accuracy and fairness in our coverage.
How much do you need?
What is inventory financing?
- 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.
Don’t fit the bill for inventory financing?
How does inventory financing work?
8 best inventory financing loans
Types of inventory financing
Inventory loans
- Typical APR: Between 6% and 99%.
- Repayment terms: Six months to seven years.
- Funding speed: Some online lenders can provide funding within one day, but traditional term loans can take several weeks.
Inventory lines of credit
- Typical APR: Between 10% and 99%.
- Repayment terms: Typically six to 24 months.
- Funding speed: Within the same business day or up to several weeks, depending on the lender.
Pros and cons of inventory financing
Pros | Cons |
✅ Flexible qualification requirements. Because inventory financing is self-collateralizing, you may not need to rely as heavily on your personal credit or time in business to qualify for funding. You may also be able to avoid putting up additional assets as collateral. | ❌ Limited loan amounts. Lenders will typically offer only a percentage of the total cost of the inventory you’re looking to purchase. |
✅ Can benefit sales. This type of financing can help you meet increased customer demand, prepare for a busy season or upgrade a product line — without having to pull from cash reserves to purchase inventory. | ❌ Can be expensive. Business loan rates can be high on this type of financing compared to more traditional loan options. Although newer businesses and those with bad credit can qualify, they may receive particularly high rates. |
✅ Fast and simple application process. If your inventory records are organized, it can be quick and easy to apply for this type of loan, especially when working with an online lender. | ❌ Not all inventory is eligible. 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
1. Review your qualifications
2. Compare inventory financing options
- 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
- 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.
Alternatives to inventory financing
- Invoice financing or factoring: Both invoice financing and invoice factoring can help B2B businesses cover gaps in cash flow by advancing money on 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.