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How does Inventory Finance work?

Written by

Shaun McGowan

Inventory finance is a type of business finance used to purchase inventory or stock. It allows a business to borrow a specific amount of its current stock value, which is then also used as security on the loan amount.

You can use an inventory loan to buy stock, or for any other business purpose. It enables you to leverage your inventory to give you access to vital cash flow for your business and, due to the security required, is often easier to access than unsecured business finance.

Key Features

  • Borrow from $5,000 to $500,000
  • Fixed or variable interest rates
  • Repayments to suit your budget
  • Terms from one month to five years
  • Secured & unsecured options
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Who is eligible?

  • Own a business and have an ABN
  • Business is GST-registered
  • Permanent Citizenship or Residency
  • Minimum business-operating time of six months
  • Can provide business bank statements
Minimum requirements for a business loan

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What is Inventory Finance?

Inventory finance is a category of business loan products used to purchase business inventory or stock. Inventory loans can allow a business to borrow up to a specified portion of its inventory value, and often use the purchased inventory as collateral on the loan.

Inventory finance functions in a similar way to most business loans, except that the loan amount is secured by unsold stock or inventory:

  • A business applies for inventory finance with a suitable lender
  • The lender assesses the finance application to determine if the business qualifies
  • The lender agrees to finance up to a certain value of the business’s current stock (~80%)
  • The business and the lender agree to the finance terms and conditions
  • The business receives the funds from the lender
  • The business makes regular repayments until both the principal amount and any interest charges are repaid.

This can be an incredibly useful form of finance for businesses that have large quantities of unsold stock in a warehouse and need to access cash flow for their business, such as:

  • Wholesale businesses
  • Retail stores and shops
  • Cafe and restaurant businesses

The loan is secured by the unsold stock to allow borrowers to access lower rates and better deals than through unsecured business finance. A secured inventory finance agreement also presents a lower risk to lenders, allowing borrowers with imperfect credit scores to access finance.

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How to compare Inventory Finance options

Any business can use inventory finance, though the clear candidates are businesses that operate by selling a product, and have reserves of inventory and stock that are unsold.

Stock and inventory can be completed products, self-assembly products, or simply parts for existing products. Inventory finance can also be used by manufacturing businesses, which make and then sell on the parts to other businesses in the supply line.

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Inventory finance is commonly used when:

  • Payment schedules between suppliers, your business, and customers, is insufficient to effectively manage your inventory levels.
  • You need to access finance to secure a limited-time offer on discounted inventory from a supplier.
  • Cash flow is allowing you to trade as normal, but you need to finance additional stock to meet the demand for times of the year when sales spike.
  • Regular demand for your products is increasingly high and you need to secure large amounts of stock you hadn’t accounted for.
  • The business is growing and you need to expand your product line or develop a new product.

You can use the smart form to compare loan offers from real Australian lenders, and apply directly for inventory finance online with a number of specialist lenders.

Find the best rate on inventory finance


Inventory Finance Case Study

Type of Business: Wholesale

Loan Amount: $20,000

Case: A wholesale business has been operating for three years and has identified a spike in sales between March and April for a particular product.

The business has previously sold the majority of the stock but has been unable to further advertise during this period at the risk of selling out entirely and disappointing customers.

Based on this reliable trading pattern and projected revenue over this period, the business owner chooses to apply for inventory finance up to $20,000, to secure additional stock and additionally market their business during this time.

The business presents this to the lender, who finances the amount to purchase additional inventory and market the business. The business combines its increased stock and increased exposure to achieve the same sales pattern with much greater revenue.

The business owner is then able to repay the lender early, saving on fees and interest charges, while still securing a healthy increase in available cash flow for the remainder of the year.

How to qualify and apply

Qualifying for inventory finance is relatively simple. Most lenders will be able to provide options if you:

  • Have been trading for at least 12 months; and
  • Have an ABN; and
  • Are registered for GST; and
  • Have a clean credit history; and
  • Own property or can provide a 20% deposit
How to qualify for a loan in Australia

Although the process will be a little more involved, if you don’t meet the above criteria you can still get approved if you:

  • Are self-employed or a sole trader
  • Have been trading for between 6 - 12 months
  • Have an imperfect credit history
  • Do not own property

There are two main types of applications, which will depend on the amount you wish to borrow. If you are borrowing less than $100,000 the approval process will be fairly simple.

Most times, just your business bank statements will be sufficient to illustrate your monthly business revenue.

If you wish to borrow more than $100,000, your lender will require additional documentation to assess your application.

If this is the case, you’ll need to provide additional documentation to the lender so they can better assess your application. Here are some tips to improve your chances of getting approved.

If you are borrowing less than $100,000:

  • Proof of identity
  • An ABN and GST registration
  • An acceptable credit rating — the lender will ask to conduct a credit check
  • Business bank statements
  • Trust Deed if the business is held in a trust
  • Australian Tax Office (ATO) Portal access.

If you are borrowing more than $100,000:

  • All the documentation provided if borrowing less than $100,000; and
  • Financial records (provided by your accountant)
  • Profit and Loss Statements
  • Balance Sheet

If you are making an application for more than $100,000, you can speak to your bank or a lender directly to discuss your financial circumstances and need for finance.

If you are applying for less than $100,000, you can generally apply online with a number of different specialist business loan lenders, including those who provide loans designed specifically for inventory finance.

Lenders will assess an application based on the monthly revenue of the business, its intended use for the loan, how the loan will benefit future business revenue, and more.

Each lender will have different approval criteria, but here are some tips to improve your chances of getting approved.

  • Demonstrate an ability to service your business loan or lease.
  • Meet the lender's criteria for acceptable credit rating
  • Meet the lender's criteria for minimum turnover and maximum debt
  • Provide profit and loss statements and your business balance sheet
  • Provide details of the asset you wish to purchase
  • Provide read-only access to your business bank statements
  • Provide a personal guarantee by the director of the company

As inventory finance is determined by the strength of your previous trading history and value of your unsold stock, you will generally need to provide a lender with:

  • An accurate, up-to-date list of your unsold stock and inventory.
  • Business records that illustrate the value and frequency of your sales. A realistic sales forecast which illustrates how you plan to successfully repay the lender.

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Here are the most popular inventory finance questions people are asking:

In a business context, inventory is any possession you’d record on your balance sheet, like the stock in your warehouse or the cash in your bank account.

Inventory finance is used to acquire, develop, or manufacture new stock or inventory for a business. It is generally used by product-centric businesses to prepare for busy sale periods or to acquire large amounts of stock at a reduced price.

Inventory finance can be a way to borrow against available stock and spread the cost of a purchase over a longer-term arrangement. The benefits of upfront payment vs long-term finance will depend entirely on your business circumstances. Since you’ll be using the inventory itself as security it can be easier to access than some other forms of business finance.

If you are applying for inventory finance, lenders will generally look at the creditworthiness and serviceability of your business, instead of your credit rating. You may be able to find lenders who will approve inventory finance even if you have a less-than-perfect credit score.

About the Author

Shaun McGowan from



Shaun McGowan

Shaun is the founder of and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded and Lend.