Inventory financing is business funding used to buy stock for resale, usually secured by that stock and paid down as it sells or on a schedule. Quillfield Business Funding, a small-business funding broker in Kalamazoo, Michigan, explains how it works for Kalamazoo County retailers and wholesalers and routes requests to lending partners, which decide and set rates and terms.
| Pays for | Stock bought for resale |
|---|---|
| Collateral | Usually the stock being financed, plus a UCC filing |
| Repayment | Reduced as stock sells, or by scheduled installments |
| Common add-ons | Stock reports, inventory audits, borrowing base |
| Kalamazoo County context | 838 retail employers, the most of any sector (Census CBP 2023) |
| Decision | Lending partner decides and sets the advance rate |
How inventory financing works
A partner advances money against goods you are buying or already hold, usually a share of their cost or resale value rather than the full amount. As the goods sell, the business pays the advance down, sometimes item by item, sometimes on a schedule set in the agreement. The stock is the main collateral, so the partner cares about what it is, where it sits, how fast it moves and whether it holds its value.
How to finance inventory: four common routes
- Inventory loan: a lump sum for a known purchase, such as an opening order or a large seasonal buy, paid back on a schedule.
- Inventory line of credit: a revolving limit that rises and falls with the value of eligible stock, known as the borrowing base.
- Floor plan financing: used for high-value items that are each identified by serial number, such as vehicles, boats, trailers or large appliances. Each unit is financed when it arrives and paid off when it sells.
- Supplier terms: not financing from a partner at all, but net-30 or net-60 terms from the vendor. Always ask; they are often the cheapest money available.
Floor plan financing for dealers
Floor plan financing is the dealer's version of inventory funding. The partner pays the manufacturer or distributor for each unit, the dealer displays and sells it, and the partner is paid from the sale. Partners usually check the floor regularly to confirm every financed unit is still there or has been paid off. It suits businesses selling a modest number of identifiable, higher-priced items, not a store with thousands of small products.
Inventory financing or factoring?
They solve different problems. Inventory financing is borrowing against goods before they sell. Factoring is selling invoices after a sale has been made on credit, so a third party collects from your customer. A wholesaler might use both: inventory financing to buy stock, then factoring or a line of credit to bridge the wait between delivering and getting paid.
Retail and wholesale in Kalamazoo County, MI
Retail trade had 838 employer establishments in Kalamazoo County in 2023, more than any other sector, with 13,692 paid employees; 38.9 percent of those stores had fewer than five employees (U.S. Census Bureau, County Business Patterns 2023). A further 1,446 retail businesses operated with no paid employees in 2024 (U.S. Census Bureau, Nonemployer Statistics 2024), a separate count, not to be added to the employer figure.
Wholesale trade, the distributors that stock those shops and supply contractors, had 240 employer establishments and about $594.1 million in annual payroll (CBP 2023). Both groups buy before they sell, which is the situation inventory financing exists for. The county profile shows how retail compares with every other sector, and retail store loans in Kalamazoo County works through stock, fixtures and slow months for a shop.
Liens and UCC filings
Most inventory partners file a UCC financing statement with the state, a public notice that they hold a security interest in the inventory or in business assets generally. That filing can affect later borrowing: a second partner may decline, or ask the first to agree to share. Before signing, ask whether the filing covers only the financed stock or all business assets.
Selling taxable goods in Michigan also means holding the right state tax registration before most partners will look at a retail request; the Michigan sales tax license guide covers what to check.
Stock financing next to a credit line or a working capital loan
- Inventory financing ties the money to the goods, so the limit follows the stock.
- A line of credit is more flexible: draw for stock one month and for payroll the next.
- Working capital suits a one-time gap that is not specifically about goods.
- A merchant cash advance is not a loan; some card-heavy shops are offered one for stock, but the total remittance should be compared with every other route first.
All six options are compared on one page, and the industry pages show which structures fit which sectors.
What an inventory partner asks for
- A current stock list with cost and quantities
- Sales history by product line, to show turnover
- Recent bank statements and the latest financial statements
- Supplier invoices or the purchase order you want to fund
- Where the stock is kept and the insurance that covers it
The four steps explain when each item comes into play.
By Quillfield Business Funding ยท Updated