Kickfurther inventory financing
Finder Rating: 3.9 / 5 ★★★★★
Loan amount | Up to $2 million |
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APR | Not applicable |
Min. Credit Score | 600 |
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Inventory financing gives your business the cash flow it needs to fill orders and grow. While traditional inventory financing works directly with your supplier, you can use almost any business loan or line of credit to cover the cost of new inventory. The best option for your business depends on factors like your industry and how often you’ll need financing.
Inventory financing is any type of financing that a business uses to buy wholesale products to sell. It’s most commonly used by growing small businesses that can’t qualify for a bank loan but need funds to meet demand. It can also be used to improve cash flow. While inventory financing often more expensive than a traditional bank loan, but comes with more lower time in business, credit score and revenue requirements. It’s also faster — some providers can fund a loan within 24 hours.
Inventory financing often works by giving your business credit to purchase inventory. Often, inventory financing uses the inventory you purchase as collateral. If you default on the loan, your lender can seize your inventory to make up for the lost payment.
However, it’s possible to find financing options to pay for inventory without collateral. These may be a better option if you’re buying perishable inventory, like produce. Unsecured options include unsecured lines of credit and term loans. Accounts receivable financing and merchant cash advances also don’t require collateral, but at a higher cost.
In some cases, some lenders offer loans secured with inventory your business already owns as collateral. You can use the funds for any legitimate business use — including purchasing new inventory.
If you’re using the loan to purchase new inventory, the lender typically bases your loan amount on the manufacturer’s price of your inventory.
But if you’re using inventory your business already owns to secure the loan, some lenders will appraise the value of your inventory after you get started on the application. Often, this means you’ll have to hire an appraiser to assess your inventory and calculate how much the bank would be able to receive if it had to seize and sell your inventory as collateral.
Because inventory often depreciates, or loses value over time, you often can’t receive funding to pay for the full cost of your purchase. Typically, you’ll qualify for around 80% of your inventory’s liquidation value. So if the inventory was appraised at $12,000 and the lender asks for a 20% down payment, you’ll qualify for $9,600 in as a loan or line of credit.
Some lenders might do regular inspections of your inventory as you pay off the loan or credit line. But this is more common with banks than online lenders.
Inventory financing has many benefits, but it comes with several drawbacks you should consider before applying.
One of the main benefits of inventory financing is that it comes with collateral built into the loan. That can make it easier to qualify for than other types of financing. And even unsecured inventory financing options typically come with fewer requirements than your typical lender.
Traditional inventory financing providers can also sometimes send the funds directly to your supplier to speed up the process. And many offer the option to continually finance your inventory expenses if you experience cash flow gaps.
One of the main drawbacks of inventory financing is that many options often comes with high interest and short loan terms compared to a traditional bank loan. Especially if you go with a provider that doesn’t require collateral and accepts startups or poor credit.
If you go with a lender that uses your inventory as collateral, you might also be required to pay a down payment on your inventory. In some cases you also might need to have your inventory regularly appraised. This is can be time-consuming for some businesses — and difficult to conduct if you operate entirely online.
There are several types of inventory financing including term loans, lines of credit and cash advances. Some may use your inventory as collateral for the loan or line of credit. Others use other business assets as collateral — or none at all.
Traditional inventory financing is a short-term loan that your business uses to buy the products it sells. These typically use your inventory as collateral, so how much you borrow depends on the value of your inventory. And if you fail to repay the loan, you’ll lose your inventory.
When you borrow from a lender that specializes in inventory financing, the lender often requires a down payment of around 20% and pays your supplier directly instead of sending you the funds. Sometimes, you’re required to work with specific fulfillment centers to qualify for a loan — especially if you have an online business.
These providers sometimes collect payments in monthly installments, or a percentage of your sales. Often you’ll pay a fixed fee instead of interest, which can result in APRs well over 100%.
Kickfurther inventory financing
Finder Rating: 3.9 / 5 ★★★★★
Loan amount | Up to $2 million |
---|---|
APR | Not applicable |
Min. Credit Score | 600 |
A line of credit allows your business to have continual access to cash to replenish your inventory as needed. You often have the option to use your inventory as collateral or apply for an unsecured credit line. But generally, you’ll have to pay the manufacturer yourself, so it requires more work than traditional inventory financing.
Lines of credit tend to be less expensive than inventory financing because they usually come with interest instead of a fixed fee. But credit lines of online lenders are often more expensive, with rates as high as 80% in some cases.
BlueVine business lines of credit
Finder Rating: 4.5 / 5 ★★★★★
Loan amount | $5,000 – $250,000 |
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APR | Starting at 6.2% |
Min. Credit Score | 625 |
OnDeck business lines of credit
Finder Rating: 4.7 / 5 ★★★★★
Loan amount | $6,000 – $100,000 |
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APR | 29.9% to 99.9% |
Min. Credit Score | 625 |
A term loan offers a one-time lump sum of financing, which you repay plus interest. It’s a good choice for businesses that don’t regularly need inventory financing. Like with a line of credit, you can use the inventory as collateral or apply for an unsecured term loan. And also, like a line of credit, you’ll have to pay your suppliers yourself.
Funding Circle business loans
Finder Rating: 4.4 / 5 ★★★★★
Loan amount | $5,000 – $500,000 |
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APR | 11.29% to 30.12% |
Min. Credit Score | 660 |
OnDeck short-term loans
Finder Rating: 4.6 / 5 ★★★★★
Loan amount | $5,000 – $250,000 |
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APR | 29.9% to 99.9% |
Min. Credit Score | 625 |
Accounts receivable financing, also known as factoring, involves selling your business’s unpaid invoices to a factoring company at a discount. This is generally best for businesses that work with other businesses or government agencies.
Usually you can receive around 85% of the value of your unpaid invoices upfront. The factoring company will give you the remaining amount, less a fee, after your clients fill the invoices.
Your eligibility doesn’t rely on your personal or business financial history, making it a good option for startups and business owners with bad credit. But like a lot of options that are friendly to startups or bad credit, the fee can translate into APRs that are higher than your average term loan or line of credit.
Lendio business loans
Finder Rating: 4.75 / 5 ★★★★★
Loan amount | $500 – $5,000,000 |
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APR | Starting at 6% |
Min. Credit Score | 560 |
Merchant cash advances give your business an advance on future sales for businesses that serve consumers. You can usually get a percentage of your average monthly sales upfront, which you repay plus a fixed fee with a percentage of your daily sales. These typically don’t come with credit or time in business requirements.
But merchant cash advances are one of the most expensive types of business financing out there. APRs regularly reach 300% and the daily payments can be inflexible. Save this option for a last resort.
Fora Financial business loans
Finder Rating: 4.1 / 5 ★★★★★
Loan amount | $5,000 – $750,000 |
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APR | Varies |
Min. Credit Score | 670 |
Each lender has different requirements, but generally you must meet the following criteria to qualify for an inventory financing loan.
While it’s possible to use a bank loan to finance inventory, banks harder to qualify with than online inventory financing providers. You can often check if your business qualifies by filling out a preapplication form on the lender’s website.
Inventory is one of the first things you’ll need to purchase if you’re starting a new company. But you typically can’t qualify for inventory financing without a record of at least a few months of sales.
If you need seed money to buy inventory, microloans might be your best option. Typically microlenders offer up to $50,000 in financing and have programs that are designed to help get startups off the ground.
Read our guide to the best business loans of February 2023 to learn about more options.
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