Inventory financing, and the arithmetic that decides whether it is worth doing
Money leaves to buy stock long before the stock turns into cash. Financing bridges that gap. Whether it should is not really a question about the interest rate — it is a question about your gross margin and how fast the goods move, and those two numbers give you a straight answer.
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The gap you are actually financing
Every product business runs the same loop: cash buys stock, stock sits, stock sells, cash comes back. Financing exists because the loop does not close instantly, and the length of the gap — not the size of the order — is what determines how much financing costs you.
Accountants call the measurement the cash conversion cycle, and it is worth doing on a napkin before doing anything else. Three numbers:
- Days inventory outstanding — how long stock sits between arriving and selling.
- Days sales outstanding — how long customers take to pay you after they buy. Zero if you are paid at the till.
- Days payable outstanding — how long your supplier lets you wait before paying them.
Add the first two, subtract the third, and you have the number of days your own money is tied up. That is the window financing has to cover.
75 + 30 − 45 = 60. A business selling on 30-day terms with 75 days of stock on hand and 45-day supplier terms funds a 60-day gap on every cycle. Lengthen the supplier terms and the gap shrinks; take longer to sell and it grows. Both are cheaper levers than borrowing.
This is why two businesses with identical revenue can have completely different financing needs. The one that turns stock in three weeks and gets paid at the till may need almost nothing. The one holding a season of goods and selling on terms to retailers is financing months of working capital whether or not it has borrowed a penny.
It also tells you what to fix first. A supplier who will extend from 30 days to 60 has just given you a month of free financing. That is worth pursuing before an application.
What “inventory financing” actually means
The phrase covers several different arrangements, and which one is being described changes what you can expect. It is worth being precise, because they qualify differently and cost differently.
| Arrangement | How it works | What it suits |
|---|---|---|
| A short-term loan | A lump sum you use to buy stock, repaid on a set schedule regardless of how fast the stock moves. The most common thing sold under this name. | A defined purchase with a known timeline — a seasonal build, a container, an opening order. |
| A revolving line of credit | A limit you draw against as you reorder and repay as you sell. Interest generally accrues only on the drawn balance; other fees vary by lender and agreement. | Continuous replenishment where the requirement recurs rather than arriving once. |
| Lending against the stock itself | The inventory is pledged as collateral and the advance is set as a percentage of its appraised value, usually with reporting on what is on hand. | Larger, well-documented stock holdings — and it typically requires the reporting to go with it. |
| Financing tied to a specific order | Funds paid toward a supplier to fulfil a confirmed customer order, settled when the order is delivered and invoiced. | A confirmed order larger than the business can fund itself. A distinct product with its own providers. |
Fundur is a financing marketplace, not a lender, and the routes above sit with different parts of the market. The two that most product businesses are actually placed into are the first two: a working capital loan for a defined purchase, or a business line of credit where the need recurs. Both are underwritten on the business and its trading history rather than on the stock, which is generally faster and asks for less paperwork than a facility secured against inventory.
Worth knowing before you search further. Financing tied to a confirmed customer order — often called purchase order financing — is a specialist product with its own providers, and it is not the same thing as borrowing to buy stock for sale. If the money is going to a supplier against an order you already hold, say so early; it changes which market you belong in. If the constraint is that customers have already been invoiced and have not paid, that is invoice factoring, which prices against the invoice rather than the business.
Does the margin cover the carry?
This is the whole decision, and it is one line of arithmetic. Financing stock is worth doing when the gross margin on the goods is larger than the cost of holding them for as long as they will actually take to sell. The rate matters far less than most people expect. The turn speed matters far more.
Take the order in the panel at the top: $60,000 of stock at cost, selling for $100,000. That is $40,000 of gross margin. Now ask how many days of financing $40,000 buys, at various prices of money:
| Gross margin | at 12% APR | at 18% APR | at 30% APR | at 51% APR | at 97% APR |
|---|---|---|---|---|---|
| 20% | 760 days | 507 days | 304 days | 179 days | 94 days |
| 30% | 1,304 days | 869 days | 521 days | 307 days | 161 days |
| 40% | 2,028 days | 1,352 days | 811 days | 477 days | 251 days |
| 50% | 3,042 days | 2,028 days | 1,217 days | 716 days | 376 days |
Two things fall out of the table, and both are counter-intuitive.
At healthy margins, even expensive money is survivable. A 40% margin order financed at around 97% APR still has 251 days before the carry consumes the margin. If that stock turns in 90 days it costs about $14,350 — painful, but 36% of the margin rather than all of it. The order is still profitable.
At thin margins, cheap money stops being enough. A 20% margin gives you 94 days at that same price. Retail and distribution businesses running on 20–25% gross margins do not have room for expensive short-term money against slow stock, and the failure is not dramatic — the goods simply sell for what they cost once financing is counted.
So the question to answer before applying is not “what rate can I get”. It is how many days will this specific stock take to sell, and does the honest answer sit comfortably inside the number in the table. If last year's version of the same order took twice as long as planned, use that number rather than the plan.
A seasonal build and a reorder are different problems
Most inventory requests are one of two shapes, and they want different structures. Asking for the wrong one is a common reason a sensible request gets an awkward offer.
The seasonal build
Stock goes in months ahead of a concentrated selling period, and the cash comes back in a rush at the end of it. The financing need has a start and a finish, the amount is known in advance, and repayment ideally lands after the season rather than during the build. A lump sum repaid on a schedule that runs through the selling period fits this well. What does not fit is a facility that starts drafting daily the week after funding, while the stock is still in a warehouse and no cash is coming in.
If your season is genuinely concentrated, say when it is. The mismatch between when repayment starts and when revenue arrives is the thing to negotiate, and it is easier to raise before an offer than after.
Continuous replenishment
Stock turns steadily and is reordered constantly. There is no single purchase to finance, just a permanent working capital requirement that rises with sales. A revolving facility suits this because you draw as you reorder and repay as you sell, and interest generally accrues only on the drawn balance. A series of lump sums does not suit it — each one arrives, gets spent, and repays on its own clock, and after two or three the repayment obligations overlap.
Growth is the trap here. A business growing 40% a year has a permanently growing stock requirement, and financing it with successive short-term loans stacks obligations faster than the growth funds them. That is a structural problem rather than a pricing one, and where it has already happened the fix is usually one replacement facility rather than another position. Fundur can look at consolidating or paying off existing business positions.
What gets asked, and what actually decides it
For the two routes most product businesses use, underwriting looks at the business rather than at the stock. In practice that means recent bank statements, time trading, and revenue — not an inventory appraisal. Requirements vary by lender and product; the general shape is set out on business loan requirements, and where the file is thin, what is really required is a shorter list than most people expect.
Three things carry more weight than owners generally expect:
- How the account behaves, not just what it holds. Days spent at a negative balance and the pattern of deposits tell an underwriter more about a product business than a single month's revenue does.
- Whether stock is already financed. Existing positions with daily or weekly drafts reduce what can be added on top, because the repayment has to come out of the same cash the stock will generate.
- What the money is buying. A specific order with a supplier, a price and a delivery date is a far stronger request than a general ask for working capital, and it is the same money.
Businesses with little or no trading history are generally not served well here, whatever the merit of the plan. Underwriting on a product business reads the trading record, and a few months of it is normally the practical minimum.
On speed: decisions on the working capital routes can come within hours, and funding as soon as the same day may be available on qualifying deals. If a container is landing on a fixed date, work backwards from it rather than starting the week it arrives — see how fast funding actually moves.
Inventory financing, answered
What is inventory financing?
It is borrowing to buy stock you intend to sell, repaid as the stock converts back into cash. In practice it is usually delivered as a short-term loan or a revolving line of credit rather than as a distinct product, and it can also be arranged as lending secured against the inventory itself. Which of those you are offered depends on the size of the requirement and how well documented the stock is.
How do I know whether financing stock is worth it?
Compare the gross margin on the goods with the cost of financing them for as long as they will actually take to sell. On a $60,000 order selling for $100,000, the $40,000 of margin covers about 251 days of financing at around 97% APR, or roughly 1,352 days at 18%. If the stock turns comfortably inside that window the order is still profitable. If it does not, the goods are being sold to service the financing.
Is the interest rate the most important thing?
Less than most people assume. How fast the stock turns matters more, because cost accrues with time. A 40% margin absorbs expensive money over a short hold far better than a 20% margin absorbs cheap money over a long one. Work out the days first, then price it.
Do I need to pledge the inventory as collateral?
Not for the routes most product businesses use. A working capital loan or a line of credit is normally underwritten on the business and its trading history rather than on an appraisal of the stock. Lending secured specifically against inventory is a different arrangement, generally used for larger and well-documented holdings, and it usually comes with ongoing reporting on what is on hand.
Is inventory financing the same as purchase order financing?
No. Purchase order financing pays a supplier against a confirmed customer order you already hold, and settles when that order is delivered and invoiced. Inventory financing buys stock you intend to sell, with no particular buyer attached yet. They are different products with different providers, so it is worth saying which situation you are in early.
Can a seasonal business finance a build ahead of its season?
Yes, and it is one of the more common reasons for the request. The thing to get right is the repayment schedule: a facility that begins drafting immediately after funding will be taking money out through the months when stock is sitting and nothing is selling. Say when the season actually is, because the timing of repayment against revenue is easier to address before an offer than after.
How much stock financing can a business get?
It depends on the lender, the revenue and what is already outstanding, so the honest answer is that amounts vary and are set case by case. A more useful way to size it is from the cash conversion cycle: work out how many days your own money is tied up on each cycle, and finance that gap rather than a round number.
How quickly can inventory financing be arranged?
On the working capital routes, decisions can come within hours and funding as soon as the same day may be available on qualifying deals. Facilities secured against the stock itself take considerably longer, because the collateral has to be assessed. If the timing is driven by a delivery date or a supplier deadline, work backwards from that date.
Tell us what the stock is and how fast it moves. That is the part that decides the structure.
One application, compared across lenders, with the total repayment and the APR on every offer — so you can put it straight against the margin on the goods.
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