Capital & Financing

Inventory Financing

Learn inventory financing — borrowing against the stock a product business must buy before it sells — to fund a larger position without depleting cash, at a lower advance rate because inventory is hard to liquidate.

  • Intermediate
  • 12 min total
  • 13 chapters

What decision this helps you make: Whether to borrow against inventory — and how the stock's turnover and sellability set the borrowing power.

What this topic is

Inventory financing borrows against the stock a business holds — a loan or line of credit secured by the inventory. It funds the cash crunch of a product business: inventory must be bought before it's sold, tying up cash.

Why it matters

It lets a product business fund a larger stock position without depleting cash. But inventory is harder to liquidate than receivables, so the advance rate is lower (~40–60%), and slow-moving or dead stock is discounted or excluded.

Who should learn it

Product businesses (retail, wholesale, manufacturing) whose cash is tied up in inventory.

What you will understand

  • Understand inventory financing: borrowing against your stock
  • See the cash crunch it solves: buy inventory before you sell it
  • Know the lower advance rate — inventory is hard to liquidate
  • See the tie to turnover and dead stock: fresh stock borrows best

Prerequisites

Common misconception

"Inventory is an asset, so I can borrow against it like receivables." Inventory is borrowable — but at a lower advance rate (~40–60%, vs. ~80–90% for receivables), because it's harder to sell and value. And lenders discount slow-moving, seasonal, or obsolete stock heavily — because if they seize it, they recover only a fraction. So healthy, fast-turning inventory borrows well; dead stock borrows poorly or not at all. The same qualities that make inventory a good asset make it good collateral.