Inventory financing is money for stock, secured by that stock and paid down as it sells. This page covers how it works at a convenience store, what to compare across offers, an invented clothing restock, how it differs from a working capital loan, and what slow sell-through adds to a bicycle shop's order.
At a glance
- Pays for
Goods bought for resale
- Secured by
The financed stock
- Clothing and clothing accessories stores, Jim Wells County, TX
11 employer establishments (CBP 2023, NAICS 448)
The goods on order as collateral: a Jim Wells County, TX convenience store's pallet of drinks and snacks
With inventory financing, the goods on order are the collateral. A funding partner may pay the supplier, or advance part of the stock's cost to the business, and take a lien on that stock until it is paid for. At a Jim Wells County, TX convenience store, that could be a pallet order of drinks, snacks and household goods arriving all at once while sales come in a few dollars at a time.
- With the supplier's price for the order in hand, the owner phones (361) 204-8622 or fills in the request form.
- A funding partner reviews the business, the order and how long similar stock has taken to sell.
- Any offer names the share of the order it covers, the term and the cost.
- If the owner accepts, the partner pays the supplier or funds the business, and files its lien on the goods.
- Payments fall due on a schedule, or as the goods sell, depending on the offer.
County Business Patterns counted 21 gasoline stations (NAICS 4471) with employees in Jim Wells County, TX in 2023. Where a station also runs a store, only the shelf goods are in scope here; fuel and fuel equipment are not.
Advance share, term and unsold goods: the terms to pull from each stock offer an Alice, TX owner holds
Inventory financing companies word their offers in different ways, so laying two offers side by side means pulling the same few terms out of each one. An Alice, TX owner comparing offers can check:
- The advance share: how much of the order's cost the partner covers, and what the business pays itself
- How long the term runs, and whether each payment is a set sum or rises and falls with sales of the goods
- The cost, stated as a rate, a fee or both, and any fee for each draw or each order
- What happens to goods that are still unsold when the term ends
- Whether the lien covers only the financed goods or other business assets too
In ZIP 78332, ZIP Code Business Patterns listed 97 retail employer establishments for 2023; 41.2% employed fewer than five people. A store of that size can read an offer the way a chain buyer would: by the cost of the whole order through the day the last unit sells.
Boots, jeans and work shirts on a 6-month schedule: an Alice, TX clothing store's restock, paid down as the racks empty
Clothing and clothing accessories stores numbered 11 among Jim Wells County, TX employer establishments in 2023, and 54.5% of them had fewer than five employees (County Business Patterns, NAICS 448). A shop that size can have its whole restock budget tied up in one supplier invoice.
Illustration only, invented figures: an Alice, TX clothing store finances a $12,740 restock of boots, jeans and work shirts over 6 months at a 13.6% annual rate.
| Monthly payment | Six payments total | Cost of financing |
|---|---|---|
| $2,208.35 | $13,250.10 | $510.10 |
In this invented case, the store pays $510.10 to have the stock on its racks before the sales that pay for it, by our arithmetic. If the racks empty in four months, the last two payments come out of sales already banked; if the goods sit, the payments still fall due.
Inventory financing or a working capital loan: the difference for Jim Wells County, TX machinery and parts suppliers
Both put money into operations, but they are secured and sized differently. Inventory financing is tied to specific goods: the amount follows the order, and the goods back it. A working capital loan is a lump sum for any operating bill, payroll and rent included, sized from the business's deposits and paid back on a fixed schedule.
Machinery, equipment, and supplies merchant wholesalers (NAICS 4238) counted 31 employer establishments in Jim Wells County, TX in 2023, and 64.5% of them had fewer than five employees (County Business Patterns). A supplier of that kind may stock pumps, valves and parts for customers in the oil and gas trade.
- Parts bought for resale, on a supplier invoice: inventory financing fits the purchase.
- Wages for the counter and the yard while customers pay on account: a working capital loan fits the gap.
- Both bills repeating month after month: a business line of credit may fit both.
Sixty days on the floor or 120: what sell-through time adds to an Alice, TX bicycle shop's financed order
Stock that sells slowly costs more to carry when the money behind it is charged by the day. Illustration only, invented figures: an Alice, TX bicycle shop finances a $9,735 order of bikes and helmets at a 12.75% annual rate, with interest worked by the day on a 365-day year.
- Paid off at day 60, as the order sells through: $204.03 of interest
- Still on the floor until day 120, then paid off: $408.07 of interest
- The extra 60 days on the floor: $204.04 more, before any fee an offer lists
In this invented case the cost to carry the order roughly doubles when the bikes take twice as long to sell, so the weeks similar stock took to sell last time are worth having in hand on the call. Some offers also set a date by which unsold goods must be paid for.
By Southmoor Business Funding ยท Updated