Inventory Loans for Small Businesses


In the world of small business, there are several reasons why financing is needed. From covering working capital to paying for inventory, having access to affordable financing to pay for business needs is crucial to ongoing business success.

Inventory is often an area of concern for small businesses, as the upfront cost of purchasing finished products can be cumbersome. Fortunately, there are solutions for small business owners in need of inventory that allow for payment over time.

Inventory financing is a form of small business lending designed specifically to help companies borrow funds for inventory purchases.

Companies can use inventory financing to pay vendors and suppliers quickly while keeping their own cash for other working capital needs. Businesses have several options including traditional banks and less traditional sources of business funding and business financing. Some inventory financing solutions are detailed below.

Inventory Financing Options

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Small Business Loans for Inventory


Rates (APR)
10% – 25%

Loan Term
12 – 36 Months

$50,000 – $400,000

Many lenders provide small business loans specifically for the purpose of purchasing inventory.

Both secured and unsecured loans exist, but their availability depends heavily on the financial strength of the small business applying for financing.

For secured small business loans for inventory, companies use the inventory purchased as collateral to back the loan. Should the loan go unpaid, the lender has the opportunity to recoup any losses by taking possession of and ultimately selling the inventory purchased.

With an unsecured inventory loan, there is no collateral involved. Instead, the lender bases its lending decision on the financial stability of the business.

Unsecured loans may have higher interest rates than secured loans, but the inventory purchased with the financing remains under the control of the business.

With either a secured or unsecured loan for inventory, businesses may be able to borrow a larger amount of cash and repay it over three to five years. However, this is not always ideal for small businesses that have high inventory turnover frequently.

Small business loans for inventory are offered from a variety of lenders, but the eligibility requirements and application process differ for each finance company.

Small businesses will likely need to provide details about their business financials, including debts owed, assets on hand, and inventory to be purchased. They may also be required to provide information about annual revenue, tax returns, and cash flow to qualify. In many cases, applications for small business loans for inventory can be completed online, and funding may be available within just a few business days.

Short-Term Inventory Loans


Rates (APR)
24% – 99%

Loan Term
6, 12, 18 Months

$2,000 – $250,000

In addition to small business loans for inventory, companies may have access to short-term inventory loans. With a short-term loan for inventory, business owners apply for a secured loan with a much shorter repayment period than a small business loan. These financing options are only available to businesses with pressing inventory needs, and the inventory purchased with the help of the loan is often used as collateral.

A short-term inventory loan is most readily available from online lenders, and it may have a higher interest rate than a secured or unsecured small business loan for inventory.

However, funding is fast for businesses that qualify. To be eligible, small businesses may need to provide details about their financial statements, cash flow, and current or future inventory to the lender. Small businesses also need to be in operation for at least six months to qualify and have annual revenue that meets the lender’s requirements.

Inventory Lines of Credit


Rates (APR)
14.0% – 40.0%

Loan Term
36 Months

Up to $100,000

Small businesses also have the option for a business line of credit to help cover inventory purchases. With a small business line of credit, a revolving credit account is established that can be used for ongoing inventory purchasing needs.

Unlike a small business or inventory-specific loan, a business line of credit can be used over and over again each time inventory is needed. The flexibility with a business line of credit is appealing to some business owners, but it may create an opportunity to over borrow if business owners aren’t careful.

Business lines of credit used for inventory often have higher interest rates than fixed loans, but the total amount of funding available may be much higher than a single loan.

To apply, a business owner submits an application that includes details about the financial state of the company, including outstanding debts, cash flow, and assets on hand. Some business lines of credit are secured, meaning the inventory purchased is used as collateral, while others have no collateral requirement. Once an application is submitted, a business may receive access to the revolving line of credit in as little as a few business days.

Bottom Line

Small business owners have many options when it comes to financing inventory purchases, including small business loans, short-term loans, and business lines of credit.

With each financing option, there are advantages and drawbacks that must be recognized and weighed against each other.

  • ?Small business loans for inventory may be the most affordable in terms of the interest rate, but the long-term repayment may not be beneficial to the business over time.
  • Inventory-specific short-term loans may come at a higher price, but the reduced repayment term is helpful in covering costs efficiently in a short period.
  • Business lines of credit for inventory offer the most flexibility for ongoing inventory purchases, but they also make it easy to over-borrow.

Considering each of these features of inventory financing is crucial to making the right decision for your business.

Author: Jeff Gitlen

Jeff Gitlen writes about a wide range of finance topics including everything from student loans to credit cards to small business financing. Jeff's work has been featured on a number of sites including Bloomberg, CNBC, Forbes, Market Watch, and more.


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