What is Inventory financing?

Small stores often need to pay suppliers before customers pay them. If a candle shop needs $8,000 of wax and jars for the holiday season but only has $3,000 in cash, inventory financing can cover the gap. The lender gives money based on the value of stock on hand or on order, and you repay it once the goods sell.

Use it carefully. The interest or fees add to your cost of goods, so you need enough margin to cover them and still profit. It works best for predictable, fast-selling items, not for stock you are unsure will sell.

Example

A apparel store wants to order 500 jackets at $20 each, total $10,000, ahead of winter. They have $4,000 cash and take $6,000 in inventory financing at 2% monthly interest. If the jackets sell within two months, the financing costs $240, and the owner needs to sell enough jackets above $20.48 each (cost plus financing share) to stay profitable.

Common mistakes

• Borrowing against slow-moving stock that takes months to sell, so interest piles up.
• Ignoring fees when setting retail prices, which shrinks real margin.
• Using financing to cover a sales problem instead of fixing demand forecasting first.

Inventory financing and SteadyShelf

SteadyShelf does not arrange financing, but its demand forecasts help you size orders accurately so you only borrow for stock that will actually sell within your lead time.

SteadyShelf is launching on the Shopify App Store. Join early access to get the install link first.

Related terms

Carrying cost · Purchase order · Lead time · Cost of goods sold · Holding cost

Full inventory glossary

FAQ