An inventory loan is a type of short-term business loan offered to retailers so they can buy stock. The loan is secured against the stock, which is used as collateral in the event that the stock is not sold.
While often retailers have enough capital to cover any stock orders, some may sometimes find that they don’t have enough to cover the stock they need or they may find a discount deal on stock that requires more than they currently have available.
A retailer can therefore apply for an inventory loan if they don’t think they’ll sell their stock before the invoice for the stock is due for payment. They’re also often used at peak trading times, such as Christmas, when retailers will typically sell a larger volume of stock.
When applying for an inventory loan be sure that you can actually sell all the stock you buy. This form of lending can be a good form of finance, but make sure that it’s something you definitely need first!