What Is Inventory Financing?

Inventory financing is capital you borrow using your inventory as collateral. Two main flavors: purchase order (PO) financing, where the lender pays your supplier directly, and an asset-based inventory line, a revolving credit line collateralized by inventory on your balance sheet. The shared idea is to unlock cash that would otherwise be trapped in stock.

How each works

PO financing. You issue a $300K PO to your supplier. The financier pays the supplier directly. When the inventory sells, you repay the financier from sales proceeds, plus a fee (typically 2 to 6 percent of PO value depending on payback time).

Asset-based inventory line. A revolving credit line collateralized by the inventory on your balance sheet. Typical advance rate: 50 to 70 percent of cost. You draw against the line as needed and pay interest only on what's drawn (8 to 15 percent APR typical).

Provider landscape

Wayflyer (PO financing plus RBF blend)
Settle (PO financing for ecommerce)
Tradeshift
Bank Asset-Based Lending (ABL) facilities (for larger brands, $20M+)
Specialty inventory lenders (Eclipse, Crossroads)

Good vs bad use

Good: proven SKUs with predictable sell-through, seasonal builds, supplier discounts that exceed the financing cost.

Bad: new launches with uncertain sell-through, slow-moving inventory, overstocked categories.

The most common mistake

Financing slow-moving inventory. The financing cost keeps compounding while the inventory sits unsold. End state: you write the inventory down AND you still owe the financier. Only finance inventory that will reliably sell inside the financing window.

Frequently Asked Questions