Inventory financing is business funding secured by the goods a company holds for sale, typically sized as a percentage of the inventory's value and repaid as stock sells or on a schedule. Lakeshire Business Funding, a small-business funding broker in Duluth, Minnesota, explains advance rates, liens and reporting, then introduces requests to lending partners, which decide and set rates and terms.
| Collateral | The inventory being financed |
|---|---|
| Sized by | An advance rate applied to the stock's value |
| Structures | Term loan for one purchase, or a revolving line |
| Reporting | Often periodic inventory reports to the partner |
| Lien | Usually a UCC filing covering inventory |
| Who decides | The lending partner |
How to finance inventory: the basic mechanics
A partner values the stock you hold or are about to buy, then lends a portion of that value. The portion is called the advance rate. It is lower for goods that are hard to resell, such as custom or perishable items, and higher for goods with a wide resale market. The partner files a lien on the inventory so that, if the debt goes unpaid, it can claim the goods.
Two structures are common. A one-time inventory loan funds a specific purchase and is repaid on a schedule. A revolving inventory line sets a limit tied to the current value of stock, usually called a borrowing base, and the available amount rises and falls as stock is bought and sold.
A hypothetical borrowing base
Invented figures, for illustration only. Suppose a distributor's eligible inventory is valued at $200,000 at cost, and the partner's advance rate is 50 percent. The borrowing base is $100,000. If the business already owes $70,000 on the line, $30,000 remains available. If stock falls to $160,000 after a busy month, the base drops to $80,000 and only $10,000 is available, even though nothing else changed.
That is why partners ask for regular inventory reports: the amount you can draw depends on what is on the shelves today, not what was there at signing.
Liens and UCC filings on inventory
Most inventory lenders file a UCC financing statement describing the collateral. A second lender that later wants to lend against the same stock will see that filing and may decline or ask the first lender to agree to share. Before you apply, look up what is already on file against your business; the Minnesota UCC search guide explains how to search by debtor name and what an old filing that was never terminated can do to a new request.
Stock loan, credit line or working capital: which one?
| Situation | Usually the better fit |
|---|---|
| A large opening order or a one-time bulk buy | One-time inventory loan |
| Stock that is bought and sold continuously | Revolving inventory line or a general credit line |
| A short gap that includes stock, payroll and rent together | Working capital financing |
| Goods that are custom, perishable or hard to value | Often a general line or working capital, since advance rates on such stock are low |
A general line of credit can pay for inventory without the inventory reports, but partners may set its limit lower or require other security. Inventory financing ties the limit directly to the goods, which can help a business whose main asset is its stock.
Inventory loans for a new business
A business with little operating history has a harder time with any financing, and inventory is no exception. Partners want to see how quickly goods sell, and a new business has no record of that yet. Owners in that position often find that a supplier's own trade terms, or equipment financing for fixtures, are more realistic first steps. If you are preparing a new Minnesota business to borrow later, the Minnesota borrowing guide sets out what to put in place first.
Retail and wholesale stock in St. Louis County, MN
Retail trade had 773 employer establishments in St. Louis County in 2023, employing 12,122 people with an annual payroll of about $392 million; 288 of those establishments had fewer than five employees. Wholesale trade had 195 employer establishments, 75 of them with fewer than five employees (U.S. Census Bureau, County Business Patterns 2023). Separately, 1,141 retail businesses and 202 wholesale businesses in the county ran without paid employees in 2024 (U.S. Census Bureau, Nonemployer Statistics 2024).
Every one of those businesses has the same cash problem in a different size: goods are paid for before they are sold. The retail sector page covers store costs beyond stock, such as fixtures, point-of-sale systems and remodels. The county's business profile has the wider picture, and funding by sector covers construction and restaurants.
Paperwork inventory partners tend to request
- A current inventory list with cost values, and how it is counted.
- Sales history showing how fast stock turns over.
- Business bank statements and, often, financial statements.
- Supplier invoices for the purchase being financed.
- Details of any existing liens on the business's assets.
How a request moves explains what happens once those documents reach a partner.
By Lakeshire Business Funding · Updated
