January 6, 2023
min read
Written by: 
Nikolaus Hilgenfeldt

Inventory Financing - Everything You Need To Know

Do you want to expand your company's inventory but are short on cash?

Stable capital is a significant hindrance to the easy operation of any business. It affects the company's ability to generate consistent profits and expand its stock.

And most companies turn to bank loans when they need to keep operations going. 

However, traditional bank loans can be challenging to obtain and have stringent qualification criteria.

This especially applies to start-ups and businesses with no steady cash flow or established credit history. 

In these cases, inventory financing is a viable substitute for conventional bank loans, regardless of cash flow or credit standing.

Today, we'll explain what inventory financing is, how it works, and list the top 5 things to consider when applying for it.

Let's start!

What is Inventory Financing?

Inventory financing is a short-term loan obtained by a business to purchase products and stock, which also serve as collateral.


You can use inventory finance to reduce the monetary impact of cash flow variations that occur throughout the year.

Also, allowing the purchase of surplus goods for later use can assist a business in increasing its sales volume.

How Does Inventory Financing Work?

Inventory financing is an asset-based type of financing where your credit and cash flow status actually doesn't matter.

That applies even if you have credit issues or your cash flow is severely damaged.

Lenders provide businesses with two different types of inventory financing:

  • Inventory loan — A loan secured by a company's inventory in which the borrower makes regular monthly payments or full repayment when all the inventory is sold.
  • Line of credit — A type of revolving credit that allows you to get the money as long as you keep up with your monthly payments and other terms of the agreement.

For example, let's say you have an inventory worth $500,000 or higher. 

You can use the existing inventory and apply for a low-interest rate credit line borrowing against that inventory or get a credit line to buy the inventory.

Now, let’s find out which things you need to know when considering applying for inventory financing.

5 Things To Consider With Inventory Financing

Expanding one's business's operations can be very beneficial. But on the other hand, it may lead to various monetary issues, especially with the inventory. 

Inventory financing may be an excellent option if you need help meeting customer demands. . 

Here are 5 things to be aware of when applying for inventory financing.

1. Find out The Terms and Conditions

Understanding the terms and conditions of the loan before agreeing is essential. This includes the interest rate, the repayment schedule, the fees, and other terms and conditions.

Before applying for inventory financing,  a company must meet specific criteria, which may vary from lender to lender.

Let’s take Myos (a merchant’s growth partner) as an example. To apply for asset-based financing, your company must:

  • Be registered in the UK or the EU.
  • Operational for at least 6 months.
  • Selling online for at least 50 days (e.g., on Amazon, eBay, online shop, etc.).

Before applying for inventory financing, it is wise to consider all available options. And to find out more, you can look at our article about the best 7 asset-based finance companies.

 2. What Types of Inventory are Eligible For Financing

Depending on the lender, inventory financing is usually available for a variety of types of goods, including:

  • Supplies
  • Retail merchandise
  • Materials used to produce your products
  • Other non-obsolete inventory

The lenders usually review your inventory, and if it qualifies, you can be approved quickly for a loan based on your inventory records.

For example, Myos specifies the following requirements for product availability:

  • Products have at least a one-year shelf life.
  • The product's minimum price is 5 EUR (EU) or 5 GBP (UK).
  • Available merchandise.
  • The project doesn’t include the following products: COVID-19 products, branded watches, ammunition, and weapons (masks, rapid tests, etc.)

Furthermore, Myos uses AI to determine your product's eligibility based on your inventory and financing data and then presents a loan suggestion in light of that analysis.

3. What is The Financing Limit

Most lenders will impose a cap on the amount of inventory that can be financed. This cap is typically determined by the inventory's value and the borrower's capacity to repay the loan.

Rarely do inventory finance companies finance the entire product. As a result, you can typically anticipate receiving between 50% and 80% of the product's value.

This percentage is based on your product's liquidation value and has no impact on the retail price.

Simply put, you can receive up to 80% of the product's value while bearing the cost of the remaining 20%. Your loan is repaid with the income you earn.

For instance, Myos offers cross-financing, stock financing, and purchase financing with fees as low as 1.5-3% and a financing limit of up to €/£2 million.

Here are Myos’ general framework conditions:


With inventory financing, the lender wants to see evidence that the inventory you're trying to finance is in good shape and that it's being properly managed and organized.

As a result, future contract terms can be even better and higher.

4. What are The Risks Involved

As we've established, inventory financing is fully collateralized by your stock. As a result, owners of businesses who are struggling with their credit scores can benefit from this program. 

In addition, the goods are the only collateral required to ensure the payment of the loan. This means no personal guarantees and no credit history to get the loan.

However, as with any financing, there are certain risks associated with inventory financing. These include: 

  • Higher costs — The market value of physical goods depreciates over time, which means that stockpiled goods may be sold for less than was initially anticipated.
  • Shorter terms — Loans secured by inventory typically expire when the stock does. Since the loan will be repaid in a shorter time frame, the monthly payments may need to be higher to cover the principal.
  • Restrictions of use — Loans against inventory can only be used to buy stock. This means you cannot use this financing to pay for other business expenses.

Myos, for instance, uses only goods as collateral, enabling you to pay back your loan within 24 months. 


The benefit of Myos' program is that it enables you to repay the money even after a week and finish the project without incurring additional expenses.

5. Is The Financing Secured or Unsecured

Inventory financing can be secured or unsecured, again depending on the lender.

A loan guaranteed by a company's inventory is known as secured inventory financing, where the business is required to ensure the loan with the value of its stock.

The lender may take possession of the inventory to recover its losses in the event of a default.

Contrarily, unsecured inventory financing refers to a loan not secured by a company's inventory.

In the event of a default, the business is responsible for repaying the loan - the lender has no claim to the inventory.

But compared to secured inventory financing, unsecured financing frequently offers more affordable rates and more flexible repayment terms.

Myos, for instance, requires no personal guarantees and liability for a loan and offers flexibility and security in repayment. 

That includes:

  • Flexible repayment without a repayment plan.
  • The project can be repaid in one installment without extra fees (the funds bridge the delivery time.)
  • You choose how and when to repay.
  • Enhanced liquidity.

This scalability reflects your ability to make interest payments only when revenue is generated.

For example, let's assume that your project lasts for a full year. 

You can repay a portion of the loan in the 4th month, another in the 7th, and the rest in the final month. 

That way you can always keep track on how much financing is available and if there are any outstanding fees.

Wrapping Up

We hope that these pointers help you determine whether or not inventory funding is the best option for the expansion of your business.

And, like in any other aspect of operations, you must ensure you have a secure partner to establish your company's success and create a healthy cash flow.

Because of this, we suggest you consider Myos as a growth financing partner in your corporate strategy.

Why Myos?

We assist business owners in expanding their enterprises. 

With us, retailers can boost their sales and earnings by placing larger orders, introducing new products to the market, and boosting their advertising efforts. 


Here are the key factors that set us apart from the competition:

  • We won't ask you to sign a guarantee — There won't be any risk to your personal finances. We're only going to lend against your goods as collateral. 
  • You have complete freedom in determining when and how you make repayments — You can pay off your loan through the sale of the financed goods or some other means of generating income. 
  • We take less risk —  If the financing is not paid back, the collateralized goods are sold to cover the debt. 
  • We don’t interact with your supplier — Your business's proprietary information is safe from us.

What does Myos offer?

  • Evaluation of your products using AI.
  • Purchase, stock and cross finance as types of funding options.
  • Loan range £10,000-£2,500,000
  • An easy 3-step-application  process.
  • Fast financing (24h-72h).

Interested to find out more?

Sign up with Myos to start growing your business today.

Also interesting

This is some text inside of a div block.