What Exactly is Inventory Financing?

by Josh Biggs in Finance on 24th May 2021

Applying for a loan can be quite stressful at times. Figuring out what kind of loan you need for your business is essential and making the right choice can either make or break how a company operates in the future. Inventory Financing is known as a loan that is typically applied for by small to medium-sized businesses to purchase inventory for products to be sold later on. This type of loan could be perfect for smaller, privately owned businesses if ever they find themselves having a difficult time restocking material. 

This guide will be breaking down all of the benefits of inventory financing and key takeaways that you have to remember when dealing with Inventory Financing.


Inventory financing loans are highly flexible when it comes to payment terms and the amount needed is computed to fit as much inventory as you need over a period of time. This allows the business owner and the lending company to go back and forth to discuss the exact terms of the inventory financing agreement. With this level of flexibility, the financing begins feeling like a partnership formed for the success of your business, your lending company will make sure your business is prepared and stay operational, while you can focus on the main operation of your business.


The terms in an Inventory Financing agreement are negotiable depending on the lending company that you are working with. You can state the exact amount needed for your monthly inventory and find out if they will be able to support your financing. You can settle for half your inventory cost as well if the full amount is too much for them, or for you. If you are worried that the loan may be difficult to pay off, you can always negotiate terms for payment with your lending company that can work for you.


Since the collateral used when applying for inventory financing is your inventory, you won’t have to worry about providing any personal business or personal assets as collateral to secure the loan. In the realm of security, inventory financing also keeps your business secure by making sure that your operation does not cease due to the lack of inventory. There may be cases where the lenders will not be able to finance your full inventory, but at least you have the security of knowing they can take care of a large portion of it and you can rest assured that at least a good portion of your inventory is covered.


You can also prepare additional inventory for your business with inventory financing. You would never have to worry about running out of supplies or inventory during peak season if you prepare ahead of time to supply the demand of all your customers. Inventory financing gives you the opportunity to expand your inventory as well so you can grow your business and never miss a demand that the customer may have.


Inventory financing is relatively accessible to small and medium-sized businesses. Even if your business is still very new and you are just looking to expand your reach or increase the size of your inventory to grow your business. Less than stellar personal credit is not a make or break factor when applying, and you can access cash that would usually be tied into your inventory and use it to grow your business in other ways.

After going through this guide, you are ready to look through inventory financing companies and grow your business, prepare for the future, and keep your business secure for the future.

Categories: Finance