Inventory financing is borrowing secured by eligible raw materials, work in progress or finished goods. Availability is usually based on appraised or reported inventory value after eligibility exclusions and an agreed advance rate.
How does Inventory Financing work in practice?
The borrower reports eligible inventory by type, location and value. The provider applies valuation rules, exclusions, advance rates and reserves, then makes funding available within the facility limit. Sales, obsolescence, damage, movement and inspection results can change eligibility. Repayment commonly comes from operating cash flow or proceeds generated when the inventory is sold.
What the file should show
Maintain item-level inventory, location, ownership, aging, valuation, inspection, insurance and lender-control records.
What does Inventory Financing not establish?
Inventory can be hard to liquidate. Obsolescence, seasonality, shrinkage and specialized goods often reduce the amount a lender will advance.
