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6 Small Business Loan Options For Purchasing Inventory

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Business is cyclical by nature, and that means some times of the day/week/year will inevitably be busier than others. But even during slow times, business owners must prepare for the times when demand ramps back up again. You also have to strike when the iron is hot on wholesale deals, get ahead of short-term seasonal demand, and purchase in bulk to take advantage of discounted pricing. Inventory loans allow businesses to purchase the products, supplies, and raw materials they need to keep their business profitable throughout all the ebbs and flows.

Many businesses may need to borrow money from time to time in order to purchase inventory. Indeed, purchasing inventory is one of the most common reasons a business might need a loan. As bank loans remain out of reach or unfeasible for many small businesses, online and alternative lenders have risen to the occasion, offering smaller, faster loans that can work for even very small businesses that have never before ventured into the world of business financing. But what are the best loan options for small businesses that need to buy inventory?

Read on to learn more about inventory loans for SMB, including what to look for in an inventory loan, the top lenders that offer small business inventory loans, and whether you can (or should) use an SBA loan to purchase inventory.

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What Are Inventory Loans?

Simply put, an inventory loan is money you borrow to purchase inventory for your business. You might borrow this money from a bank, credit union, or online lender. While all restaurants and retailers (and some other types of businesses) need to purchase inventory, there are a few main reasons you might need to take out a loan to buy inventory:

  • You need inventory to start a new business
  • You ran out/are running out of inventory quicker than you expected
  • You need to prepare for a busy time (for example, the holiday season)
  • You need to restock but your funds are tied up elsewhere (for example, an equipment investment)
  • You have a time-sensitive opportunity to purchase a large amount of product at a discount
  • You need to purchase inventory in bulk to qualify for bulk pricing

Whether you want to stock up for a seasonal surge in demand or take advantage of a wholesale bargain, it can be a smart business decision to take out a loan to purchase inventory. However, there are certain things you should look for when considering this type of loan.

What To Look For In An Inventory Loan

If you need a loan to purchase inventory, it can be tempting to accept the first decent-sounding offer you receive so you can restock ASAP. However, you should look for a few key things before signing any loan. It’s possible you won’t need a financing product that has all these qualities, but generally, small businesses borrowing capital to purchase inventory need a loan with the following characteristics:

Quick Time-To-Funding

When you need to purchase inventory, you usually don’t have a lot of time to play around with. This will especially be the case if you need to replenish near-depleted supplies, or you have been presented with a time-sensitive offer to purchase product at a discount.

Though bank loans have a longer time-to-funding (a month or longer), you can typically receive funding from an online lender in less than a week, and sometimes in as quick as a day or two.

Short Term Length

Usually, businesses need to turn around inventory pretty quickly. For that reason, it doesn’t make much sense to take out a long-term loan to purchase inventory—you don’t want to be still paying off three months’ worth of product five years from now. As a rule of thumb, it’s ideal if the inventory loan’s term—the amount of time you have to pay it off—is roughly the same as the amount of time it’ll take you to sell the inventory.

Because of their short term lengths, a couple of types of financing that are especially well-suited for inventory purchases are short-term loans (STL) and short-term lines of credit (LOC). These lending products usually have term lengths of less than a year, and sometimes as short as one month. Short-term financing can have a high APR, but because you’re paying on the loan for such a short period of time, you may still pay less for the loan than you would for a long-term loan.

Easy To Renew

Inventory purchasing isn’t a one-time thing, and if you need a loan for inventory now, there’s a good chance you will need one in the future. Some lenders offer short-term loans that are easy to renew in case you need to take out another loan—in some cases, they’ll even offer a discount for repeat borrowers. However, some short-term lenders do something called double-dipping, which is when a lender charges you interest on your old loan and your new loan at the same time (you don’t want this).

If you opt for a revolving line of credit, it’s even easier to get additional funds for future inventory purchases, since available funds are automatically replenished as you pay off the money you’ve borrowed. This makes lines of credit especially well suited for buying inventory. However, some LOC lenders charge a prepayment penalty if you pay off the loan early, so that’s something else to watch out for.

Fair, Transparent Rates & Terms

Whenever you’re considering a loan, you want to ensure that you understand the terms and costs involved, and also make sure the interest rate and any other fees charged are competitive. Some lenders are more transparent about their rates and loan terms than others. Generally, the more information the lender discloses on their website, the better.

You can use our short-term loan calculator to determine how much you’ll pay for your loan.

Best Inventory Loans & Lines Of Credit For Small Businesses

The following are some of the best inventory loans and lines of credit for small businesses. These reputable lenders offer quick funding, shorter terms, and smaller borrowing amounts, generally starting at around $5,000 but in some cases offering as much as $500,000. These lenders also do not engage in double-dipping or charge a prepayment penalty. For these and other reasons individual to each lender, we recommend the following lenders for SMB inventory loans.

1. Kabbage

Kabbage



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Kabbage is an online lender offering revolving lines of credit up to $250,000. These online lines of credit are super quick, convenient, and easy to qualify for. Costs can be on the high side—APRs range from 24% to 99%—but Kabbage is at least transparent in how much they charge. They even offer a small business calculator to determine the cost of your loan. There is also a sample inventory ROI calculator that lets you see the potential return on your investment if you take out an inventory loan.

The Kabbage application takes 10 minutes, and an approval decision is similarly quick. Once you accept the loan offer, you’ll be able to start withdrawing and will see the money in your account in 1-3 days—or within minutes if you link a PayPal business account. When you need more funds, it’s just as easy to request more money using the Kabbage mobile app for iOS or Android—making Kabbage a great option for the millennial business owner who is much more comfortable using an app than making a visit to the bank. Borrowers can also request a Kabbage Card free of charge to pay for goods and services right from your credit line.

Kabbage’s draw terms are 6, 12, or 18 months, with monthly repayments, and you can save some money if you repay early. To qualify for Kabbage, you need to have at least 12 months in business with $50,000 annual revenues or $4,200/month over the last three months. So, startups will have to look elsewhere for a line of credit to purchase inventory. Kabbage checks your credit score, but does not specify a particular score you need to have; as long as you meet the other qualifications, you should be able to qualify for a Kabbage LOC even if you do not have good credit.

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2. BlueVine

BlueVine



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BlueVine is another high-quality online lender offering revolving lines of credit up to $250,000. They also offer short-term loans (with no origination fee) up to $250,000. BlueVine can be a little more difficult to qualify for compared to some online LOCs, but they’re still easier to get compared to a bank LOC. BlueVine is also highly transparent with competitive rates and terms, and you can qualify and start withdrawing funds within minutes. After that, the funds will hit your bank account within a few hours to a couple days.

Term lengths for both LOCs and short-term loans are 6 months or 12 months, with APRs from 15% to 78%. To meet the minimum qualifications for a BlueVine LOC or term loan, you’ll need a 600 FICO score, $100,000 annual revenues, and 6 months in business. BlueVine has weekly repayments for its 6-month LOCs and term loans, and monthly repayments for 12-month LOCs (which are also harder to qualify for). To withdraw more money, simply request funds using the online web portal.

If you’re not sure whether to apply for a BlueVine line of credit or term loan, know that a term loan may be better for large amounts. Though both products theoretically have a maximum amount of $250K, BlueVine says their term loan offer amounts are typically higher than their line of credit offer amounts. You can also renew your term loan once it’s 50% paid off.

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3. OnDeck

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One of the most popular online lenders for small businesses, OnDeck is hard to beat for quick, modest funding needs. OnDeck offers both STLs and LOCs, though you can only borrow up to $100,000. Some benefits of this lender include same-day funding, no-prepayment penalty on LOCs, and loyalty benefits for returning customers (they’ll waive all remaining interest on your current loan if you apply for a new one, i.e., they don’t engage in double-dipping).

As with other quick online business lenders, OnDeck’s rates can potentially be high, with APRS as high as 98.3% for term loans or 61.9% for lines of credit. With that said, OnDeck is transparent in laying out its terms, and its rates are competitive with other similar online lenders. You also don’t have to have as strong of business credentials as you’d need for a bank loan or line of credit; to meet the minimum qualifications for an OnDeck LOC or term loan, you’ll need a 600 FICO score, $100,000 annual revenues, and 12 months in business.

OnDeck’s term loans are good for short term-lengths—terms are 3-36 months with automatic daily or weekly repayments. This, combined with the possibility of same-day funding, makes these loans perfect for buying quick-turnaround inventory at a discount. OnDeck’s LOCs have a longer term of 12 months with automatic weekly repayments, and are great if you need flexibility for repeated withdrawals to purchase inventory, as there are no draw fee. If you qualify for OnDeck instant funding, LOC funds are sent to your account automatically.

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4. Breakout Capital

Breakout Capital



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BreakOut Capital is a short-term lender that is uniquely committed to transparency and ethical lending practices. From the educational resources on their website (including an APR calculator) to their commitment to helping you find another lender if their product is not a good fit for you, Breakout is a rare short-term lender you can trust. APRs can be high (36% to 60%) but are comparable to other lenders in the STL space, and Breakout may lower your rate if you take efforts to improve your credit score. If you need a flexible, renewable short-term loan up to $250,000, Breakout could be the perfect fit for you.

Loan terms range from 1-24 months, making Breakout a solid option for quick-turnaround inventory purchases. Breakout loans also act like revolving lines of credit, letting you draw against your repaid principal without changing your periodic payment amount. In other words, these loans are very easy to renew with no double-dipping. Loans are also personalized to the borrower’s needs and can have have daily, weekly, or monthly payments. Typical time-to-funding is 1-2 days.

As for borrower qualifications, you’ll need a 600 FICO score, $120,000 annual revenues, and 12 months in business. Your business does not have to be profitable to qualify. Breakout Capital also offers invoice factoring services through its partners and additionally sells FactorAdvantage loans up to $500,000 for invoice factoring customers, which don’t have any specific credit score, revenue, or time in business requirements.

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5. LoanBuilder

LoanBuilder



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LoanBuilder is an online loan service owned by PayPal (not to be confused with PayPal Working Capital loans, which are available to PayPal sellers only). LoanBuilder offers short-term loans up to $500,000, even to newer businesses (9+ months in business) with low revenues ($42,000/year minimum) and bad credit (550 FICO minimum). These loans are also easy to renew once you pay off your current loan, with next-day funding and no origination fee.

LoanBuilder loan term lengths can range from 13-52 weeks (about 3-12 months), and as the name of the product suggests, you can build your own loan on your terms during the application process, via a tool on the company’s website. Specifically, you can customize your borrowing amount and term length and then see how that affects your payments and the total cost of the loan. You’ll also see your loan terms and weekly repayment amounts before you accept the offer.

All in all, LoanBuilder loans are fast, fair, and easy to qualify for, whether you sell with PayPal or not. Yes, you’ll pay for the speed and convenience of a LoanBuilder loan—APRs can be as high as 50%—but this is true with all STLs, and LoanBuilder accepts applicants who won’t qualify for most of the other loans on this list.

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6. Lendio

Lendio



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Lendio is an online lending marketplace that matches prospective borrowers with a loan that meet their needs, at no charge to the borrower. As such, it can be a very convenient place to search for an inventory loan online, whether you’re looking for a short-term loan, line of credit, merchant cash advance, or even a longer-term bank or SBA loan. Businesses ranging from startups to larger, established businesses can potentially find inventory loans using Lendio.

While each lender in Lendio’s network of 75+ lenders has its own qualification standards, Lendio recommends applicants have a credit score of 550, 6 months in business, and $10,000/month in revenues. This makes Lendio a good fit for newer businesses that are making good money but may not have good credit. Of course, these are just the minimum qualifications; more established businesses with good credit can apply too and will receive even more loan options with better rates.

In short, Lendio is a one-stop-shop for online small business financing that can save you time you would otherwise spend applying for multiple loans and researching what loan type is best for your needs. Lendio also works with several of the other lenders on this list, including OnDeck, Kabbage, and BlueVine.

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Can SBA & Bank Loans Be Used To Purchase Inventory?

Since our suggestions are all alternative lenders, you might be wondering if banks or SBA loans are also good options for inventory purchasing. In a word: maybe. SBA loans and bank loans do generally have the advantage of a lower APR when compared to alternative/online lenders and are offered in larger amounts, up to several million dollars. Although most businesses looking for an inventory will be best served by a short-term financing product such as an STL or LOC—which are almost exclusively offered by alternative lenders—you might try applying for a bank or SBA loan for your inventory needs if the following are true:

  • You want longer repayment terms—years instead of months
  • You have at least 2-3 years in business and excellent credit
  • You have business collateral and money for a down payment on the loan
  • You need to borrow a larger sum—up to $5 million for a standard 7(a) SBA loan
  • You can wait 1-3 months, or even longer, for the loan to come through

As for why you might want a large, long-term loan offered by a bank or the SBA, one reason could be that purchasing inventory is only one of the things you want to do with the loan proceeds—you might also need to refinance another loan, purchase land or real estate, buy business equipment, or something else.

If it sounds like a bank or SBA loan could meet your borrowing needs, you might want to check out some of our SBA/bank loan resources:

Note that in addition to alternative lenders, Lendio will also connect you with SBA and bank loan offers if you qualify.

Didn’t Find What You Were Looking For? Check Out Our Other Small Business Loan Resources

If after reading this article you’ve decided that an inventory loan isn’t for you, or none of our recommendations work for you, we want to help point you toward other resources that might be of more help. Here are some resources that could help you find the type of financing you need:

Have a question about inventory loans that I didn’t address in the article? Please leave your thoughts in the comments and I’ll be sure to get back to you.

In Summary: Best Inventory Loans & Lines Of Credit For Small Businesses

  1. Kabbage: Lines of credit up to $250K
  2. BlueVine: Short-term loans & lines of credit up to $250K
  3. OnDeck: Short-term loans & lines of credit up to $100K 
  4. Breakout Capital: Short-term loans up to $250K
  5. LoanBuilder: Short-term loans up to $500K
  6. Lendio: Multiple types of business financing from 75+ lenders
Shannon Vissers

Shannon Vissers

Shannon is a writer and editor based in San Diego, CA. Shannon attended San Diego State University, graduating in 2005 with a BA in English. She is the former editor-in-chief of SteelOrbis, an online trade publication. Shannon has also published articles for LIVESTRONG.COM, eHow, Life'd, and other websites. She has been with Merchant Maverick since 2015, writing about POS software, small business loans, and financing for women entrepreneurs.
Shannon Vissers
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