Inventory Financing


DEFINITION of 'Inventory Financing'

A line of credit or short-term loan made to a company so it can purchase products for sale. Those products, or inventory, serve as collateral for the loan if the business does not sell its products and cannot repay the loan. Inventory financing is especially useful for businesses that must pay their suppliers in a shorter period of time than it takes them to sell their inventory to customers. It also provides a solution to seasonal fluctuations in cash flows and can help a business achieve a higher sales volume - for example, by allowing a business to acquire extra inventory to sell during the holiday season.

BREAKING DOWN 'Inventory Financing'

Lenders may view inventory financing as a type of unsecured loan because if the business can't sell its inventory, the bank may not be able to either. This reality may partially explain why, in the aftermath of the credit crisis of 2008, many businesses found it more difficult to obtain inventory financing.

  1. Average Age Of Inventory

    The average number of days it takes for a firm to sell to consumers ...
  2. Inventory

    The raw materials, work-in-process goods and completely finished ...
  3. Beginning Inventory - BI

    The book value of goods, inputs or materials available for use ...
  4. Carrying Cost Of Inventory

    This is the cost a business incurs over a certain period of time, ...
  5. Ending Inventory

    The value of goods available for sale at the end of the accounting ...
  6. Inventory Turnover

    Inventory Turnover is a ratio showing how many times a company's ...
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