Inventory financing is money you use to buy stock before it sells, repaid out of the sales that stock brings in. There are four common ways to do it. An inventory loan or line uses the stock itself as collateral, and banks often advance up to about 65% of its book value. A business line of credit lets you draw for each order and pay it down as the goods sell. Revenue-based financing gives you a lump sum for a seasonal buy, repaid with a set daily or weekly payment. Supplier credit on net 30 or net 60 terms lets you sell part of the order before the invoice is due. Through Today Capital Group, lines of credit go up to $250,000 and revenue-based financing runs from $5,000 to $2,000,000, typically funded within one to two business days of choosing an offer.
How inventory financing works
A shop, a wholesaler, an online seller or a parts supplier pays for stock first, then waits while the goods sit on a shelf, sell and, for wholesale accounts, get paid for. Financing covers that wait, and the sales from the stock repay it.
Lenders measure the wait with two numbers. The Office of the Comptroller of the Currency, which supervises national banks, defines inventory turnover as cost of goods sold divided by average inventory. Its handbook example is a company with $150,000 of cost of goods sold and $100,000 of average inventory, which turned its stock 1.5 times in the year. Inventory days, 365 divided by turnover, comes to 243 days in that example, so each dollar of stock took about eight months to come back as a sale.
That wait is a common strain. In the Federal Reserve Banks' Small Business Credit Survey, 2025 Report on Employer Firms, 56% of employer firms said paying operating expenses (the survey's examples include payroll, rent and inventory costs) was a financial challenge, and 51% named uneven cash flow. The same survey found that 34% of firms used a line of credit on a regular basis and 14% used trade credit.
Inventory loans and lines secured by the stock
The most literal kind of inventory financing is a loan or revolving line where the stock is the collateral. Banks and asset-based lenders offer these, usually to businesses that keep large, well-tracked inventory and can report it often. It helps to know how inventory financing lenders value your goods, because it explains why the amount is often smaller than the shelf value.
How lenders value inventory
The lender sets a borrowing base, the most it will lend against what you hold. The OCC's asset-based lending handbook says a bank typically advances up to 65% of the book value of eligible inventory, or 80% of its net orderly liquidation value. That second figure is what the stock would bring if it were sold off in an orderly way over about six to nine months, set by an independent appraiser. Inventory gets a lower advance rate than customer invoices, because an invoice only has to be collected while stock still has to be sold and paid for.
As an example, a business with $200,000 of stock on its books might find that $40,000 of it is ineligible. At 65% of the remaining $160,000, the line would allow up to $104,000. If an appraiser put the orderly sale value of that $160,000 at $120,000, an 80% advance would come to $96,000.
Not every item counts. The handbook says finished goods and commodity-like raw materials usually get the highest advance rates because they are easiest to sell, while work in process is often left out of the borrowing base entirely. Lenders also exclude old or out-of-fashion stock, goods held on consignment and sometimes stock kept at a second location. A supplier may hold a prior claim on goods it sold you, called a purchase-money security interest, and under the Uniform Commercial Code a properly perfected one in inventory can rank ahead of the bank (see UCC section 9-324). For that reason a stock-secured lender will check who else has filed against your inventory before it lends.
The trade-off for borrowing against the goods is reporting. Expect regular borrowing base reports, inventory lists, field examinations and appraisals, and a perfected first lien on the stock.
Floor plan financing for dealers
Dealers of cars, boats, equipment, appliances and furniture often use floor plan lending. The OCC's floor plan lending handbook describes it as inventory financing where each advance is made against a specific item, and the advance on that item is repaid when it sells. Most agreements add curtailments, set principal payments on units that have not sold within a set time. In the handbook's example, a new car floor plan loan with a 10% monthly curtailment starting in month 10 is fully repaid by month 19 at the latest.
A business line of credit for repeat stock orders
Many owners searching for small business inventory loans end up using a line of credit, which does the same job without an appraisal of the stock. You get a limit, draw what the next order costs, and repay what you drew on a weekly or monthly schedule. As you repay, the room comes back for the next order without a new application. A business line of credit through our network goes up to $250,000, offers often come back within a day, and some programs discount early payoff.
As an example, a distributor might draw $35,000 in August for its fall order, draw another $20,000 in October when two products sell out, and pay the balance down through November and December as the goods ship. Charges apply only to what is drawn and for as long as it is out. Our business line of credit guide covers limits, draws and repayment in more detail.
Revenue-based financing for a seasonal buy
When the need is one large purchase, such as the holiday order or a bulk buy at a supplier discount, a lump sum can fit better than a line. With revenue-based financing, a funder pays you now for a set amount of your future sales. The amount is sized on your usual revenue, and you repay it with a set daily or weekly payment until the agreed total is paid. Funders decide mainly from four months of business bank statements, usually ask for no collateral, and do not appraise or monitor your stock.
The cost is set with a factor rate, so the full payback is known in dollars before you sign. In a Federal Reserve review of online lender websites, one provider listed merchant cash advance factor rates usually between 1.14 and 1.48.
Here is a worked example with illustrative numbers. A business with about $100,000 a month in deposits (about $23,000 in a usual week) needs $60,000 in September for its holiday stock. At an example factor rate of 1.30, it repays $78,000 in total, so the money costs $18,000, or 30 cents for each dollar received. At $3,000 a week, the total is paid in 26 weeks, and that payment is about 13% of a usual week's deposits. If the stock sells for twice what it cost, the $60,000 order brings in about $120,000 of sales, which covers the $78,000 payback and leaves about $42,000 before the business's other costs. Real offers vary, and our guide to factor rates explains how to read the rate, any fees and the early payoff terms.
Revenue-based financing suits stock that turns quickly and a business with steady deposits, since the set payment continues at the same amount through the quieter weeks after the season.
Supplier and trade credit
Before you borrow, ask your suppliers what terms they offer. On net 30 terms, the invoice is due 30 days after it is issued, and on net 60 it is due in 60. If the stock starts selling in the first few weeks, part of the order pays for itself before the bill comes due, which shrinks the amount you need to finance. Some suppliers offer an early payment discount instead, for example 2% off if you pay within 10 days, which can be worth taking when you have the cash or a cheap line draw.
In the Fed's survey, 15% of employer firms sought trade credit in the previous 12 months. New accounts often start on prepayment or short terms, so it pays to ask again once you have a year of on-time orders behind you.
What lenders look at for an inventory loan
For a business inventory loan secured by the stock, the lender's first question is how fast the goods sell. The OCC handbook calls a high turnover rate desirable because it means less excess, stale or obsolete stock, and it treats rising inventory days, or days well above the industry average, as a warning sign. The lender will also look at how old the stock is, how much of it is finished goods, where it is kept and whether anyone else has a claim on it.
For a line of credit or revenue-based financing, the stock matters less than your sales history. Funders read four months of business bank statements for average monthly deposits, how steady those deposits are, the account's low balances and any payments already going to other funders. A business whose deposits rose every fall for the last two years has shown a funder that the season comes back. The funders we work with generally look for about a year in business and about $20,000 a month in deposits. If you are not there yet, apply anyway. Some funders work with newer or smaller businesses, and we will tell you what is realistic.
How to size the buy against expected sell-through
Sell-through is the share of the units you received that sold within a set period. It is the most useful number for sizing an inventory buy, because it tells you how much of the order turns into cash before the payments run out.
As an example, last season a business received 2,000 units of its main product and sold 1,500 by the end of the season, a sell-through of 75%. This year it plans to buy 2,400 units at $40 each, a $96,000 order. At the same 75%, it expects to sell 1,800 units at $80, about $144,000 of sales, and to hold 600 units, $24,000 at cost, into the next season.
Next, subtract what is already covered. If the business can put in $16,000 of its own cash and the supplier gives net 60 on $30,000 of the order, the amount to finance is $50,000. At an example factor rate of 1.30, that is $65,000 to repay, or $2,500 a week over 26 weeks. The expected sales cover that comfortably even if sell-through drops to 60%, since 1,440 units at $80 is still about $115,000.
Test the payment against a usual week of deposits rather than the best week of the season, since a set payment continues after the peak, and finance the stock you are confident will sell. Our guide to working capital loans shows how to size a wider cash gap, such as payroll and rent through the slow months.
Which option fits which stock
| Situation | What tends to fit | Why |
|---|---|---|
| Large, well-tracked inventory and time for an appraisal | An inventory loan or line from a bank or asset-based lender | The stock secures the loan, and the limit grows as eligible stock grows. |
| Cars, boats, equipment or appliances bought unit by unit | Floor plan financing (dealer lenders) | Each unit's advance is repaid when that unit sells. |
| Repeat orders through the year | A business line of credit | You draw for each order and the room comes back as you repay. |
| One large seasonal buy that sells within a few months | Revenue-based financing | A lump sum arrives in one to two business days and is repaid with a set payment sized on usual deposits. |
| Any order where the supplier allows it | Net 30 or net 60 terms | Part of the stock sells before the invoice is due. |
If you are comparing these against term loans that run for a year or less, our page on short-term business loans covers installment loans and how each type is priced. Store owners planning a holiday order will find more on peak months and fixtures in our guide to retail financing.
How to apply for inventory financing
Before you apply, write down what you plan to buy, what it costs, when the supplier needs to be paid and last season's sell-through for the same goods.
Our application is a short form plus four months of business bank statements, which you can upload or share by connecting your bank read-only. One application goes to the funders in our network, offers come back side by side, and we go through them with you before anything is signed. There is nothing to pay to apply or to see offers, and no obligation. Most businesses are funded within one to two business days of choosing an offer. To talk through a stock order first, call us at (818) 351-0225.
Inventory financing FAQ
What does it mean to finance inventory?
Financing inventory means borrowing or receiving funding to buy stock before it sells, then repaying it from the sales of that stock, either with a loan or line secured by the goods, a business line of credit, revenue-based financing or supplier terms such as net 30 or net 60.
What collateral is required for inventory funding?
A stock-secured inventory loan uses the inventory itself as collateral, with the lender taking a first lien and typically advancing up to about 65% of the book value of eligible stock or 80% of its orderly liquidation value, while a business line of credit or revenue-based financing through our network is decided mainly on bank statements and usually needs no collateral.
How to get money for inventory?
Most businesses get money for inventory by combining longer supplier terms with a business line of credit or revenue-based financing, and through Today Capital Group you can apply with a short form and four months of business bank statements and compare offers side by side, typically funded within one to two business days of choosing one.
What is inventory funding in banking?
In banking, inventory funding usually means asset-based lending, where a bank lends against a borrowing base of eligible stock and receivables, or floor plan lending, where a dealer's advance on each car, boat or piece of equipment is repaid when that unit sells.
What is the monthly payment on a $50,000 business loan?
It depends on the product and term: as examples, a $50,000 bank loan at 11% interest over 10 years costs about $689 a month, while $50,000 of revenue-based financing at a factor rate of 1.30 means $65,000 repaid at about $2,500 a week over 26 weeks, or roughly $10,800 a month.
