If you need more stock but don’t have the cash to buy it, inventory financing can help. It uses your inventory as collateral, so you can restock, prepare for a busy season or take advantage of supplier discounts — without putting other assets on the line.
How much do you need?
What is inventory financing?
Inventory financing is a small-business loan that helps you buy the products or materials you need to make and sell your goods.
It can be easier to qualify for than more traditional loan options. The inventory you buy serves as collateral on the loan, which means you may not have to use other business assets to secure the loan.
Ways to use an inventory loan
You can use inventory financing to:
Buy inventory to prepare for your busy season.
Cover short-term cash flow gaps.
Buy extra stock to meet increased demand.
Update product offerings or launch new ones.
Buy inventory in bulk at a discount.
Don’t carry much inventory?
If inventory financing doesn’t fit your business, you have other options. Jump below for alternative ways to fund your business.
How does inventory financing work?
Apply with a lender. You apply for inventory financing through a traditional bank or online lender to cover the cost of buying inventory.
The lender approves a percentage of the inventory’s value. Lenders typically finance 20% to 80% of the inventory’s value, depending on the inventory and your qualifications. Because inventory loses value over time, lenders want to make sure they can sell it to cover their losses if you can’t pay the loan back (since the inventory is used as collateral).
Sell inventory and repay the loan. As you sell your inventory, you repay the loan on the terms you agreed to with your lender.
Types of inventory financing
Inventory financing can be structured as term loans or lines of credit. The right option for your business will depend on your specific needs.
Inventory loans
Best for: Large, one-time inventory purchases.
Typical annual percentage rate (APR): 14% to 99%.
Repayment terms: Six months to seven years.
Funding speed: One day to several weeks, depending on the lender.
How it works: An inventory loan functions like a traditional term loan. You receive a lump sum of money and pay it back, with interest, over a set period of time. These loans often have higher borrowing amounts and longer repayment terms, making them ideal for big, one-time inventory purchases — like preparing for a busy season or launching a new product line.
Inventory lines of credit
Best for: Ongoing inventory needs.
Typical APR: 10% to 99%.
Repayment terms: Six to 24 months.
Funding speed: Same day to several weeks, depending on the lender.
How it works: An inventory line of credit gives you flexible access to cash you can tap into as needed. You pay interest only on what you borrow, and once you repay the balance, the funds become available again — similar to the way a credit card works. This makes lines of credit a good option for regular restocking or unpredictable demand.
In most cases, a business line of credit makes more sense when buying inventory, says Christina Dodge, a certified business advisor at Maine’s Small Business Development Center. That’s because with a line of credit, you can repay what you borrow as you sell your inventory. And then when you’re ready to buy more, you’ll have that line available to tap into again.
Dodge recommends against getting a term loan with a repayment period much longer than your inventory takes to sell.
6 best inventory financing loans
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| Product | Max loan amount | Min. credit score | |
|---|---|---|---|
 Fora Financial - Online term loan Nerdwallet Rating 4.7 with NerdWallet Small Business | $1,500,000 | 570 | with NerdWallet Small Business |
 SBA 7(a) loan with NerdWallet Small Business | $5,000,000 | 650 | with NerdWallet Small Business |
 Bluevine - Line of credit Nerdwallet Rating 5.0 with NerdWallet Small Business | $200,000 | 625 | with NerdWallet Small Business |
 OnDeck - Online term loan Nerdwallet Rating 4.9 with NerdWallet Small Business | $400,000 | 625 | with NerdWallet Small Business |
 iBusiness Funding - Online term loan Nerdwallet Rating 4.0 with NerdWallet Small Business | $500,000 | 660 | with NerdWallet Small Business |
 Fundbox - Line of credit Nerdwallet Rating 4.7 with NerdWallet Small Business | $250,000 | 600 | with NerdWallet Small Business |
Pros and cons of inventory financing
Pros | Cons |
✅ Flexible qualification requirements. Because the inventory serves as collateral on the loan, your personal credit or time in business might not hold as much weight when qualifying. You may also be able to avoid putting up extra assets as collateral. | ❌ Limited loan amounts. Lenders typically offer only a percentage of the total cost of the inventory you’re looking to buy. |
✅ Can benefit sales. Helps you meet increased customer demand, prepare for a busy season or upgrade a product line without having to pull from cash reserves. | ❌ Can be expensive. Business loan rates can be high compared to more traditional loan options, especially for newer businesses and those with bad credit. |
✅ 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, the products you plan to buy need to be nonperishable and should hold their value for at least the length of your loan. |
How to get inventory financing
1. Review your qualifications
Checking your business credentials before you apply can help you focus your financing search. Most lenders look at your personal credit score, time in business and annual revenue when deciding whether to approve you for a loan. The higher those three numbers, the better.
For inventory financing, they’ll also consider the value of the inventory you’re looking to purchase, as well as any additional collateral you can offer.
Banks versus online lenders
Although banks and credit unions typically offer the most competitive rates and terms, they’re harder to qualify for.
Online lenders, on the other hand, are usually more flexible with their qualification requirements. These lenders may work with startups or borrowers with bad credit — but they’ll charge higher interest rates.
2. Compare inventory financing options
You’ll want to research several inventory financing options to determine which one is the best fit for your business. Compare factors such as:
Repayment terms. Loans that have short repayment terms 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. Make sure you understand what the rates and fees are and how they’re charged. If a lender quotes interest as a factor rate, calculate it into an APR to get a better sense of the loan cost.
Collateral requirements. Some lenders may require you to secure your loan with other assets on top of the inventory.
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. Banks, meanwhile, can take weeks to disburse funds.
3. Gather documentation and apply
The business loan application process will vary by lender, but you’ll typically need to provide documentation such as:
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.
Lenders may ask for a third-party appraisal to assess the value of the inventory you’re looking to buy. They may also ask about your inventory turnover and inventory management system.
After you submit your application and receive approval, you may get access to funds as quickly as the same day — depending on your lender. Before signing the business loan agreement, however, you’ll want to review it to make sure the terms and rates are correct, and you’re clear about any penalties or fees.
Alternatives to inventory financing
If you’re having trouble finding or qualifying for inventory financing, there are other options to consider:
Purchase order (PO) financing: Similar to inventory financing, purchase order financing can be used to cover cash flow gaps. While inventory financing can be used for general inventory needs, PO financing is tied to the needs of a specific purchase order.
Invoice factoring: This type of financing can help B2B businesses cover gaps in cash flow by advancing money on unpaid customer invoices. With invoice factoring, a company buys 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 charges interest only on money you have spent on the card. As you pay down the card, you can spend money on it again.
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.
