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| Inventory financing uses the business's current inventory as collateral
for the secured loan. You can expect the maximum loan amount to be much
less than 100 percent of the valuation figure the lender calculates. A
typical situation with an average valuation, as calculated by the lender,
would allow for up to 60 - 80 percent of the inventory to be loaned. A
manufacturer's inventory, which consists of component parts and other
unfinished material, might only be valued at 30 percent. The key factor is
how fast the inventory can be sold and at what price.
Inventory financing loans are usually short-term. The interest rates are similar to those used for accounts receivable lending. Inventory financing is most commonly used for the purchase of new inventory. This is especially true when an upcoming event/season necessitates additional inventory in stock. Return to Asset-Based Financing
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