How inventory financing works for Union City, TN stores and wholesalers: the kinds of companies that offer it, an invented restocking example, why stock counts matter, a purchase order example and the steps from supplier invoice to payoff.
At a glance
- Pays for
Goods bought to resell, before they sell
- Secured by
The inventory itself, under a lien
- Repaid
As stock sells, on the offer's schedule
Inventory Financing Companies: Banks, Supplier Programs and Specialist Funding Sources
Several kinds of companies offer inventory financing, and each prices the stock it lends against in its own way:
- Banks and credit unions, which may set up an inventory line for an established store and ask for more records in return.
- Supplier and manufacturer programs, where the maker of the goods carries the cost for a set number of days or months.
- Specialist funding sources that lend only against inventory and may check the shelves or the warehouse in person.
- Online funding sources that may decide from bank deposits and a stock list, at a cost that can run higher.
A Union City, TN request goes to a funding partner, and the partner decides what share of the stock to fund. The business loans overview sets this product beside the five others the site covers.
Inventory Financing Example: Restocking an Obion County, TN General Merchandise Store
An invented general merchandise store wants a $24,000 stock order on the floor before a run of sales. In this example a partner funds 70% of the supplier invoice, $16,800, and the store pays the other $7,200 from its own account.
The funded part runs five months at an invented annual rate of 13.5%. Each payment is $3,474.25, the five payments total $17,371.25, and the interest comes to $571.25. If the stock sells slower than planned, the payments stay the same, so the store should plan on cash for them even in a month of weaker sales.
Obion County, TN had 11 all other general merchandise stores with a payroll in 2023, per County Business Patterns. The ZIP 38261 count for the same category was 7 (ZIP Code Business Patterns).
What Is Inventory Financing, and Why Does the Stock Count Matter?
Inventory financing is funding tied to goods held for sale. The stock is the collateral, which is why a partner may want to know what is on hand, what it cost and how long it takes to sell. Goods that move every few weeks can be simpler for a partner to value than slow lines that sit for a year.
That is also why a partner may lend against less than the full cost. Stock that has to be sold off after a default may not bring its retail price, so the advance leaves room for that. Some agreements ask for a monthly stock report; others set a fixed loan and leave the counting to the business. The store restocking article weighs inventory financing and a credit line for a sporting goods store, and the machinery finance article points a pallet plant's raw lumber toward inventory financing.
Purchase Order Financing Example: An Industrial Supply Wholesaler Filling a Plant's Order
Purchase order financing pays a supplier so a business can fill an order it has already won. In this invented case, an industrial supply wholesaler gets a $46,500 order from a plant for conveyor belting and bearings. Its own supplier wants $31,000 before it ships.
A purchase order funder pays the invented $31,000 bill straight to the supplier. At an invented fee of 2.75% of that amount for each 30 days, and with the plant paying 52 days after delivery, two fee periods apply: $1,705.00. The plant pays the invoice, the funder takes back its $31,000 plus the fee, and the wholesaler keeps $13,795.00 before its own freight and staff costs.
County Business Patterns counted 9 machinery, equipment, and supplies merchant wholesalers in Obion County, TN in 2023, and 3 of the 9 had fewer than five employees.
How Does Inventory Financing Work From the Supplier Invoice to the Last Payment?
An inventory deal can run in this order, though each partner writes its own terms:
- The business lists the goods, the supplier and the invoice total, and states how many weeks that stock takes to sell in its own shop.
- A partner reviews the request and, if it makes an offer, names the share of cost it would fund and the repayment schedule.
- The funds go to the supplier or to the business, and the partner records a lien on the inventory.
- The business repays as sales come in, and the lien is released when the balance is paid off.
A business that buys stock again and again may compare this with a revolving line, where each restock is a new draw. The line of credit page sets the draw period beside the repayment phase. The industries page notes when a single large tire order may suit inventory financing better than a line.
By Larkwood Lenders · Updated
