Larkpine Lending Group, an Iowa City, IA small-business funding service, explains inventory financing: money for stock you will resell, usually secured by that stock. The page covers how it works, buying ahead of demand, turnover and carrying-cost arithmetic, and what funding partners review before they decide.
| What it is | Funding for stock you resell |
|---|---|
| Secured by | Usually the inventory |
| Retail employer sites, Johnson County, IA, CBP 2023 | 479 |
| Retail employers under 5 people | 34.2% |
| Decision made by | The funding partner |
Inventory financing explained: what it is and how it works
A partner advances money to buy specific stock and takes a security interest in it. Some structures are a loan repaid on a schedule; others are a revolving facility repaid as goods sell. Partners usually lend against part of the stock's value, not all of it, because inventory loses value if it does not move.
Inventory loans for small business work well when you know what you are buying, roughly when it will sell, and at what margin.
Buying stock ahead of demand, aisle by aisle
The core use is timing: you pay suppliers now and get paid by customers later. A clothing store ordering for the next quarter, a c-store stocking up before a price change, a parts counter taking a volume discount: in each case, the money goes out well before it comes back.
Loan to buy inventory for a boutique: partners look at sell-through history, the supplier's terms and how much of last season's stock is still on the floor. A boutique with clean turnover reads very differently from one with full back rooms.
How to calculate inventory turnover ratio from your own books
Turnover is the year's cost of goods sold, divided by the average stock you held at cost. Average inventory is roughly (opening inventory + closing inventory) / 2.
Illustrative arithmetic (not an offer)
A gift shop's cost of goods sold was $240,000 last year. It started the year with $50,000 of stock at cost and ended with $70,000. Average inventory is $60,000, so turnover is 4: stock sells through about every three months. A financing term much longer than three months would mean paying for stock that is already sold.
Is there a typical inventory carrying cost? Work out your own
There is no single typical figure we can cite. Carrying cost includes financing charges, storage, insurance, shrinkage and markdowns on stock that sits. Add up your own: what did slow-moving stock cost you last year in markdowns, and what does the space it occupies cost per month? Financing makes sense when the margin on the goods clearly exceeds those costs plus the financing charge.
Retail and stock-heavy businesses in Johnson County, IA
Johnson County, IA had 479 retail employer establishments in 2023, and 34.2% had fewer than five employees (County Business Patterns 2023). Within retail, the county counted 76 clothing and accessories stores, 48 gasoline stations, 38 building material and garden supply dealers and 27 grocery stores.
The retail industry page goes deeper on store types, and the Iowa City, IA page has the county overview.
Choosing between stock financing and a revolving line
If you buy the same stock repeatedly, a line of credit you draw and repay may fit better. If you are making one large purchase, such as an opening order or a bulk discount, financing tied to that stock keeps it separate from day-to-day cash. Compare all six structures or browse the industry pages.
What partners usually review
- Sales history by month and turnover
- Supplier invoices or purchase orders for the stock
- Current inventory levels and aging
- Existing liens on inventory
By Larkpine Lending Group · Updated