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Guide To Inventory Financing & The Best Small Business Inventory Loans

An inventory loan is money you borrow to purchase inventory for your business. These reputable lenders offer quick funding, shorter terms, and smaller borrowing amounts.

    Shannon Vissers
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Inventory financing and other types of inventory loans are small business loans used to purchase inventory. 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 inventory 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 inventory loans and financing for small businesses? Read on to learn more about the top lenders that offer small business inventory loans. We’ll also cover the types of inventory loans, what to look for, and when to use these loans.

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  • Offers: Term loans, lines of credit, & merchant cash advances
  • Revenue Requirements: $100K/year
  • Minimum Credit Score: N/A
  • Offers: Term loans, lines of credit, & merchant cash advances
  • Revenue Requirements: $100K/year
  • Minimum Credit Score: N/A

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  • Offers: Business credit cards & merchant cash advances
  • Revenue Requirements: $15K/month ($180K/year)
  • Minimum Credit Score: N/A
  • Offers: Business credit cards & merchant cash advances
  • Revenue Requirements: $15K/month ($180K/year)
  • Minimum Credit Score: N/A

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  • Offers: Business lines of credit
  • Revenue Requirements: $40K/month ($480K/year)
  • Minimum Credit Score: 625
  • Offers: Business lines of credit
  • Revenue Requirements: $40K/month ($480K/year)
  • Minimum Credit Score: 625

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  • Offers: Short-term loans & lines of credit
  • Revenue Requirements: $100K/year
  • Minimum Credit Score: 625
  • Offers: Short-term loans & lines of credit
  • Revenue Requirements: $100K/year
  • Minimum Credit Score: 625

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  • Offers: Short-term business loans
  • Revenue Requirements: $42K/year
  • Minimum Credit Score: 620
  • Offers: Short-term business loans
  • Revenue Requirements: $42K/year
  • Minimum Credit Score: 620

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  • Offers: Multiple types of business financing from 75+ lenders
  • Revenue Requirements: Depends on financing type
  • Minimum Credit Score: Depends on financing type
  • Offers: Multiple types of business financing from 75+ lenders
  • Revenue Requirements: Depends on financing type
  • Minimum Credit Score: Depends on financing type

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Table of Contents

What Are Inventory Loans?

An inventory loan is money you borrow to purchase items your business will sell. In the case of inventory financing, the inventory you are purchasing is used as collateral to secure the loan. However, you can also use other types of business loans to buy inventory, including unsecured short-term loans and lines of credit.

Whether you need an inventory loan for seasonal business financing or to take advantage of a wholesale bargain, it can be a smart business decision to take out a loan to purchase inventory.

What To Look For In An Inventory Loan

If you need a loan to purchase inventory, it’s 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 for any loan.

It’s possible you won’t need a loan with all of these qualities, but generally, small businesses should choose inventory financing lenders with the following characteristics:

Quick Time-To-Funding

When you need an inventory loan, you usually don’t have a lot of time to act. This is especially true if you need to replenish near-depleted supplies, or you have been presented with a time-sensitive offer to purchase products 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 as quickly 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 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 to sell the inventory.

Because of their short term lengths, short-term loans (STL) and short-term lines of credit (LOC) are well-suited for inventory purchases. 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 another 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. This is something you’ll want to avoid.

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 an inventory 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.

Types Of Inventory Loans For Small Business

There are various types of financing agreements when it comes to small business inventory loans. In this section, let’s look at the types of loans commonly used for inventory purchases.

Inventory Financing

Inventory financing is a type of asset-based loan where the amount of financing you receive is directly related to the value of the inventory in question, usually 70 to 80% of the inventory’s value. As you sell the inventory you purchase with the loan proceeds, you’ll be able to repay the loan.

Inventory financing is typically used by large upstream producers and distributors of tangible goods, such as manufacturing companies and product wholesalers. You’ll need to both carry a lot of inventory and be purchasing a large quantity of inventory to qualify for this type of financing.

Inventory financing products are sometimes conflated with “inventory loans,” which is a more general term. An inventory loan is simply a loan to purchase inventory, whereas inventory financing refers to a specific type of loan wherein the inventory purchased with the loan is used to secure the loan. A standard business loan to purchase inventory may instead require another type of specific collateral, a personal guarantee, or a general blanket lien on all of your business assets.

Unlike inventory financing, which is appropriate for large B2B businesses, other types of inventory loans can be used by small B2C businesses.

Short-Term Loans

Inventory loans are often structured as short-term loans, with the expectation that the inventory will sell quickly and pay for itself quickly. With a short-term loan, you receive the entire sum up front and then repay the principal, plus interest, in installments.

Usually, the minimum loan amounts for inventory term loans are on the high side, meaning the smallest loan you can take out could be $500,000 (or higher, depending on the lender). The amount you receive will be a percentage of the appraised value of the inventory you are purchasing, to account for the fact that inventory depreciates in value over time. For example, if you need to purchase inventory with a liquidation value of $800,000, the lender may lend you 80% of that, so you’ll receive a sum of $640,000.

A short-term loan can be a good choice for large, one-time inventory purchases — if you have the opportunity to purchase a bulk amount of quick-turnaround inventory at a discount, for example. However, some loans may be easy to renew for repeat borrowing needs.

Lines Of Credit

A line of credit is a common loan structure for inventory loans and is more suitable for ongoing access to capital for inventory purchases. With an inventory-secured line of credit, the business owner receives a line of credit based on the value of their inventory, repays it as the inventory is sold, and borrows more funds as needed and the limit is replenished. The borrower only has to pay interest on the money they withdraw, plus any other associated fees.

Rather than one-time inventory purchases, an inventory line of credit can be useful for regular inventory replenishment needs due to cyclical cash flow issues, e.g., for a business that has slower sales at certain times of the year.

Note that before you turn to a small business lender for a line of credit, you may want to try to negotiate a line of credit with your vendors directly.

Accounts Receiveable & Inventory Financing

Accounts receivable and inventory financing (ARIF) is when accounts receivable financing and inventory financing are used in conjunction. Businesses that frequently have a lot of money tied up in both invoices and inventory may be able to leverage both of these assets as collateral to secure financing.

Accounts receivable financing — also known as invoice financing — is a loan based on the value of your business’s unpaid invoices. You’ll usually get a line of credit based on the value of your receivables (invoices). Because A/R financing and inventory financing are both asset-based loans, they function similarly and may be used together to secure a loan or line of credit.

As with inventory financing, with AR financing you’ll only receive 70-80% of the value of your unsold invoices; this is to account for the fact that some of those invoices may never be settled.

Invoice factoring is something slightly different, as you actually sell your unpaid invoices to a factoring company, but can also be used to leverage outstanding invoices to pay for inventory.

Purchase Order Financing

Purchase order financing can be a useful way for B2B companies to finance certain types of inventory purchases. With this type of financing, you receive an advance to buy the inventory you need to deliver on large purchase orders.

PO financing works well for companies that resell finished goods and need to fulfill orders for these goods. The way this works is you receive a purchase order from a reliable (creditworthy) customer. The PO financing company will then front you the capital to pay your suppliers for the inventory needed to fulfill that order.

PO financing is similar to invoice factoring, except with PO financing you’re taking out a loan to fulfill an order; invoice factoring is a loan based on completed orders.

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 financing with shorter terms and smaller borrowing amounts, generally starting at around $5,000 — but in some cases offering as much as $500,000 or more. Our top picks include BusinessLoans.com, Revenued, Bluevine, OnDeck, LoanBuilder, and Lendio.

1. BusinessLoans.com: Best For Comparing Inventory Financing Lenders

BusinessLoans.com


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Pros

  • Bad credit-friendly
  • High borrowing amounts
  • Receive multiple loan offers with one application
  • Allows you to compare inventory financing options

Cons

  • Rates not disclosed on website

Why We Chose BusinessLoans.com For Inventory Loans

BusinessLoans.com is an online lending marketplace that small businesses can use to apply for business financing. Some options offered by BusinessLoans.com partners work well as inventory loans, including short-term loans, lines of credit, and merchant cash advances.

Using this marketplace, you can submit one quick application and receive multiple financing offers. This way, you can comparison shop to choose the best offer to finance your inventory purchase.

BusinessLoans.com Eligibility Requirements

BusinessLoans.com has no specific borrower requirements, though it recommends that your businesses should make at least $100,000 per year and have a time in business of six months. However, BusinessLoans.com may still be able to find an offer for you even if you do not meet these minimums.

BusinessLoans.com Rates & Fees

BusinessLoans.com doesn’t list its rates or fees on its website. Fees vary depending on which partnered lender you receive a loan offer from.

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2. Revenued: Best For Inventory Loans With No Credit Check

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Annual Fee

$0

Minimum Recommended Credit

N/A

Rewards Rate

3% cash back on eligible purchases

Pros

  • Business credit card comes with credit line for cash advances
  • No credit check to apply
  • Card benefits include $500 welcome offer & 3% cash back
  • Access to cash within 24 hours

Cons

  • High factor rates
  • Doesn’t help you build credit

Why We Chose Revenued For Inventory Loans

Revenued is a financing option if you need capital to buy inventory but don’t want your credit checked. This fintech lender offers a no-credit-check business credit card tied to your business credit card, as well as a line of credit called a Flex Line that uses your future sales as collateral.

Your credit line grows automatically in line with your business revenue, making Revenued a good option for a business with high sales volume that needs regular access to cash or credit to purchase inventory (or pay other business expenses). It’s also a suitable form of inventory financing for businesses with bad credit.

Revenued Eligibility Requirements

Since Revenued does not check your credit, there is no minimum credit score to apply. However, qualified applicants will need to have at least six months in business and bring in business revenues of at least $15,000/month. Additionally, you need to maintain an average daily business bank account balance of at least $1,000.

Revenued Rates & Fees

Revenued credit cards do not carry any fees (though you will need to pay off your balance every month). Cash advances have a factor rate between 1.1 and 1.5.

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3. Bluevine: Best Inventory Line Of Credit

Bluevine


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Pros

  • Same-day funding option
  • No monthly fees
  • Credit line replenishes as you make repayments
  • Monthly repayment option (for qualified applicants)

Cons

  • Qualifications may be hard for some businesses to meet
  • High draw fees

Why We Chose Bluevine For Inventory Line Of Credit

Bluevine is another high-quality online lender offering revolving lines of credit up to $250,000. Bluevine is unparalleled in its convenience and flexibility, and you can potentially qualify and start withdrawing funds within minutes. Once your draw is approved, the funds will hit your bank account within a few hours (if you pay $15 for a bank wire) to a couple days. To withdraw more money, simply request funds using the web portal.

Business lines of credit such as Bluevine provide flexible financing for established businesses that experience seasonal revenue fluctuations or want to take advantage of inventory sales as opportunities arise.

Bluevine Eligibility Requirements

Bluevine can be a little more difficult to qualify for compared to some online LOCs, but they’re still faster and easier to get compared to a bank LOC. Specifically, Bluevine requires two years in business, $40K/month in business revenues, and a 625 FICO.

Bluevine Rates & Fees

Term lengths for LOCs are six months or 12 months, with interest rates starting at 6.2%. Bluevine doesn’t charge any monthly fees, and you can save money by repaying early. Payments are weekly or monthly depending on whether you qualify for the 6-month or the 12-month LOC.

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4. OnDeck: Best For Same-Day Inventory Loans

OnDeck


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Pros

  • Same-day funding with STL; instant transfers with LOC
  • Origination fee waived for some repeat customers
  • Builds business credit
  • Two different lending products to choose from

Cons

  • Funding not available in all states
  • Origination fee on new loans

Why We Chose OnDeck For Inventory Loans

One of the most popular online lenders for small businesses, OnDeck is hard to beat for fast, short-term inventory loans. OnDeck offers both STLs and LOCs, though you can only borrow up to $100,000 with the LOC (term loans can be as large as $250K). OnDeck has no-prepayment penalty on LOCs as well as loyalty benefits for returning customers (it’ll waive all remaining interest on your current loan if you apply for a new one, i.e., no double-dipping).

OnDeck’s short term lengths combined with its same-day funding option make these loans perfect for buying quick-turnaround inventory at a discount. And with LOC withdrawals up to $10K, OnDeck offers instant funding, which puts the money in your account within seconds of withdrawing, even on nights and weekends.

OnDeck Eligibility Requirements

To meet the minimum qualifications for an OnDeck LOC or term loan, you’ll need a 625 FICO score, $100,000 annual revenues, and 12 months in business.

OnDeck Rates & Fees

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.

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5. LoanBuilder: Best Large Short-Term Inventory Loan

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Pros

  • Inventory loans as large as $500K
  • Next-day funding
  • Relaxed borrowing qualifications
  • No origination fee

Cons

  • Fees can be high if you don’t have excellent credit

Why We Chose LoanBuilder For Inventory Loans

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. LoanBuilder’s maximum borrowing amount is at least twice the size of other popular short-term loans.

LoanBuilder is easy to qualify for, and these loans are also easy to renew once you pay off your current loan.

LoanBuilder Eligibility Requirements

LoanBuilder requires nine months in business, $42,000/year in business revenue, and a FICO of 620.

LoanBuilder Rates & Fees

LoanBuilder charges a one-time borrowing fee ranging from 2.9% to 18.72% of the borrowing amount. LoanBuilder loan term lengths can range from 13-52 weeks (about 3-12 months), and you can customize your borrowing amount and term length to 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.

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6. Lendio: Best For SBA Inventory Loans

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Pros

  • Multiple types of financing available
  • Minimal borrower requirements
  • Streamlined SBA loan application

Cons

  • Takes longer for funds to come through compared to other online lenders

Why We Chose Lendio For Inventory Loans

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 and apply for an inventory loan online, whether you’re looking for a short-term loan, line of credit, merchant cash advance, or even a bank or SBA loan.

Lendio is a convenient way to apply for SBA microloans in particular. These small government-backed loans, which have a shorter term length and a maximum borrowing amount of $50,000, are suitable for inventory purchases. Best of all, Lendio simplifies the SBA loan application process; the initial application for an SBA loan through Lendio should only take about 15 minutes.

Lendio Eligibility Requirements

Lendio has no specific eligibility requirements. Businesses ranging from startups to larger, established businesses can potentially find inventory loans using Lendio. However, if you want an SBA loan from Lendio, you will have to meet some minimum qualifications — two years in business, a credit score of 600, and a monthly income of $8K.

Lendio Rates & Fees

Rates and fees vary depending on which Lendio partner you accept a loan offer from, but for SBA microloans specifically, interest rates range from 6-9% with term lengths up to 6 years.

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Are There SBA Loans For Inventory?

SBA loans for inventory 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 loan 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 an SBA loan if you have an established business (2-3 years) and can wait a little longer for the money to come through.

One appropriate type of SBA loan for purchasing inventory is an SBA microloan. These are smaller loans offered up to $50K. Another is a Seasonal CAPline, a type of SBA 7(a) loan solely for financing seasonal increases of accounts receivable and inventory.

When To Use Inventory Financing Loans

Compared to a standard business loan, inventory financing is more expensive but is usually easier to obtain, as long as you have a larger, established business and your inventory is selling quickly. You do not necessarily need to have good credit, but you will need to demonstrate a strong sales record that indicates you will be able to easily sell the inventory you are purchasing. You will generally be able to borrow up to 50% of the value of your current inventory.

Even if you do qualify for inventory financing from an asset-based lender, you may still want to avoid this type of financing if there’s a chance you could qualify for a better loan, such as an SBA loan. This is because inventory financing loans are more expensive than traditional business loans. If you think an SBA loan could work for your business’s inventory buying needs, check out our guide to the best SBA lenders.

Inventory Loans & Inventory Financing For Small Businesses: FAQs

What is inventory financing?

Inventory financing is a type of business loan used to purchase inventory. Though sometimes the two terms are used interchangeably, technically, “inventory financing” is different from a standard “inventory loan” because with inventory financing you’re using the inventory you’re purchasing as collateral to secure the loan.

What are the main reasons for inventory loans?

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 your business for the holiday season
  • You need to restock but your funds are tied up elsewhere
  • 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

What are the main types of inventory loans?

In addition to inventory financing, a type of accounts receivable financing, some other types of loans that can be used to purchase inventory include:

  • Short-term loan
  • Line of credit
  • Merchant cash advance
  • Invoice financing
  • SBA loan

Is there inventory financing for startups?

Inventory financing lenders tend to be online companies with relaxed borrower qualifications. Though most inventory loans require at least 6 months in business, it may be possible to find financing if your business is younger, especially if you’re able to use the inventory you’re purchasing as collateral on the loan.

When must equipment and inventory loans be paid back?

Typically, you will need to repay an inventory financing loan quickly — within 3 months — and you will start repaying immediately after receiving the loan. However, with some inventory loan types, you may have as long as six months or even a year to repay the loan in full.

Equipment financing term lengths vary a lot and could be as long as several years.

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

  1. BusinessLoans.com:
    • Offers: Term loans, lines of credit, & merchant cash advances
    • Revenue Requirements: $100K/year
    • Minimum Credit Score: N/A
  2. Revenued Business Card:
    • Offers: Business credit cards & merchant cash advances
    • Revenue Requirements: $15K/month ($180K/year)
    • Minimum Credit Score: N/A
  3. Bluevine:
    • Offers: Business lines of credit
    • Revenue Requirements: $40K/month ($480K/year)
    • Minimum Credit Score: 625
  4. OnDeck:
    • Offers: Short-term loans & lines of credit
    • Revenue Requirements: $100K/year
    • Minimum Credit Score: 625
  5. LoanBuilder:
    • Offers: Short-term business loans
    • Revenue Requirements: $42K/year
    • Minimum Credit Score: 620
  6. Lendio:
    • Offers: Multiple types of business financing from 75+ lenders
    • Revenue Requirements: Depends on financing type
    • Minimum Credit Score: Depends on financing type
Shannon Vissers

Shannon Vissers

Senior Staff Writer at Merchant Maverick
Shannon has been writing for Merchant Maverick about small business software and financing since 2015. She started writing professionally about business topics in 2005. Shannon has been featured in the Washington Post, Reader's Digest, US News, MSN, Yahoo Finance, Business Insider, and other publications. She has a bachelor's degree in English from San Diego State University and currently resides in San Diego, California.
Shannon Vissers
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