Inventory Financing: Loans, Lines, Floor Plans and How Lenders Value Stock

The main forms of inventory financing

An inventory loan is a fixed amount used to buy a specific stock position, such as a seasonal build or a bulk buy at a discount, repaid on a schedule as the goods sell. An inventory line of credit works like a revolving borrowing base: you report inventory regularly, the lender applies its advance rates to eligible stock, and you draw and repay within that limit. Most lenders combine inventory with receivables in one asset-based line, because the two convert into each other through the sales cycle.

Floor plan financing is a specialized form for dealers that sell high-value, individually identifiable goods. Each advance is tied to one item, identified by serial or vehicle identification number, and is repaid when that item sells. The OCC lists automobiles, trucks, recreational vehicles, boats, construction and agricultural equipment, manufactured homes and large appliances among the goods commonly floor-planned. Separately, SBA’s Seasonal CAPLine, part of the 7(a) program, finances seasonal increases in inventory and receivables for small businesses.

Why inventory advance rates are lower than on receivables

An unpaid invoice is one step from cash; inventory is two or three steps away. It has to be sold, delivered and paid for, and in a forced sale it may fetch far less than you paid. The OCC handbook says a bank typically advances up to 65 percent of the book value of eligible inventory or 80 percent of its net orderly liquidation value (NOLV), the amount an independent appraiser expects an orderly sale over six to nine months to raise. Receivables, by comparison, commonly get 70 to 85 percent.

NOLV is usually the number that matters. A lender orders an appraisal that estimates, by category, what the stock would fetch net of selling costs, then advances a percentage of that. Fungible goods with deep resale markets appraise well; fashion items, perishables, customized parts and anything with a short shelf life appraise poorly. Retail inventory loans have traditionally been set at about 80 percent of NOLV, with higher figures treated as a sign of extra risk. Many agreements also cap inventory at a set share of the total borrowing base.

What lenders count: finished goods, raw materials and work in process

Finished goods and commodity-like raw materials get the highest advance rates because they are easiest to sell. Raw materials that are specific to your process, such as a custom pigment or a machined blank, may be worth little to anyone else. Work in process is the weakest category: it needs more labor and materials before it can be sold, so it is often excluded from the borrowing base altogether. To count at all, the goods must be salable and the lender’s lien on them must be perfected and ranked first.

Lenders also exclude stock by age, condition and location. Slow-moving or obsolete items, returned or damaged goods, samples and display units, goods in transit without title documents, and inventory at third-party warehouses without a landlord or warehouse waiver are common exclusions. Stock spread across many locations, including fulfillment centers, can get a lower rate because it is harder to verify. Consignment goods are always ineligible, because someone else owns them.

• Usually eligible: finished goods in salable condition at approved locations
• Often eligible at a lower rate: commodity raw materials
• Often excluded: work in process and custom components
• Excluded: consignment stock, obsolete or slow-moving items, damaged returns, samples
• Depends on the agreement: goods in transit, stock at third-party warehouses or fulfillment centers

Worked example: a borrowing base on $412,000 of inventory

Hypothetical. A plumbing supply distributor carries $412,000 of inventory at cost: $286,000 of finished goods, $78,500 of commodity raw materials such as pipe and fittings stock, $31,200 of assembled kits still in process, and $16,300 of a vendor’s consignment stock. An appraiser puts net orderly liquidation value at 62 percent of cost for finished goods and 45 percent for raw materials, and the lender advances 80 percent of NOLV. Illustrative only, not an offer.

The work in process and consignment stock drop out, along with $19,400 of finished goods older than a year. Availability comes to about $160,500, roughly 39 percent of total inventory cost. That is well below the $224,300 that a 65-percent-of-cost ceiling on eligible stock would allow, and lenders typically use the lower figure. Drawing $140,000 for a month at an assumed 12 percent annual rate costs about $1,381 in interest.

Floor plan financing for dealers

A floor plan line is sized from the dealer’s rate of travel, meaning average units sold per month, multiplied by the months of supply the dealer needs and the average invoice cost. Hypothetical: a powersports dealer that sells 22 units a month, keeps 75 days of supply and pays an average of $13,850 a unit needs a line of about $761,750. The OCC notes lenders typically finance 100 percent of dealer invoice cost on new units and use lower advance rates on used units, often 90 to 100 percent of the lower of cost or guidebook wholesale value.

Interest is usually charged monthly on the average daily balance at a margin over an index, and manufacturers sometimes pay it during promotional periods. A $13,850 unit that sells in 64 days at an assumed 9.5 percent costs about $231 in interest. If a unit does not sell, curtailments start: scheduled principal paydowns, such as 10 percent of the original advance a month after a set age. Lenders inspect the lot at least quarterly, monthly on pay-as-sold lines, sometimes unannounced. Selling a unit without promptly repaying its advance is called selling out of trust, and it is treated as a serious breach.

Field exams, appraisals and what inventory financing costs

Before closing, expect an inventory appraisal and a field exam that tests your perpetual inventory records against physical counts, reviews costing and markdowns, and checks the system’s ability to report stock by category, location and age. After closing, expect periodic borrowing base certificates, inventory reports, repeat exams and periodic re-appraisals. The OCC notes that these costs are generally passed on to the borrower, so ask for the exam and appraisal fee schedule up front.

Interest follows the structure. As of 2026, published ranges for business lines of credit run from about 10 to 60 percent, and term loans from about 8 to 45 percent; inventory lines inside a bank or asset-based facility sit toward the lower end, while stand-alone inventory loans to young or thinly documented businesses sit higher. Add unused-line, monitoring, appraisal and exam fees to compare offers on total annual cost.

Supplier liens and other things that block a deal

Under UCC § 9-324, a supplier that finances the goods it sells you can hold a purchase-money security interest in that inventory that ranks ahead of your lender’s earlier lien, if the supplier perfects it and sends the required notice to your lender before you receive the goods. Lenders therefore search UCC filings and ask about supplier credit terms, and they may exclude or reserve against inventory bought on secured trade credit.

Other common blockers: a prior all-asset UCC filing by another funder, inventory records kept only in spreadsheets, a high share of slow-moving stock, and a borrowing base that leans more on inventory over time while receivables shrink, which examiners treat as a warning sign. Note too that SBA 504 loans cannot be used for inventory. For a one-off purchase, an SBA 7(a) loan, a working capital loan, or for dealers a floor plan may be simpler than a full asset-based line.