Inventory Financing


Every business which indulges in trade, maintenance of stocks, or inventory is a basic necessity. At different times, they have to replenish their inventory, sometimes in bulk to reduce cost. The turn-around time for conversion of stocks and inventory to cash is variable, resulting in capitals getting locked in them. An inventory loan in such a situation helps to unlock capital ensuring cash flow and liquidity, keeping the stock asset intact. Inventory financing is based on the value of the stock in hand, which helps the business to look for expansion.

Types of Inventory Financing in India:

The classification of loan against inventory is dependent on the nature of products handled by the business. Based on this criterion, there are two distinct types of loan against inventory in India:

  • Inventory Loan: It is a one-time loan offered to borrowers to cope with emergency cash requirements against the resale value of the inventory.
  • Inventory Line of Credit: It is an ongoing funding solution primarily catering to ensure capital infusion in cases of unforeseen business expenses. This is a form of pay later finance that helps the business to restore the balance in the credit account as and when possible.

Requirements for a business loan against inventory:

Inventory in any business is an asset. Management of inventory is the primary factor that influences a lender to fulfill the credit needs of the borrower. The approval of your loan against inventory in India relies heavily on the quality of inventory handling for a realistic appraisal of your needs. Check out the ways by which you can facilitate inventory finance for small business from Banks, NBFCs and Online lenders like Lendingkart.

Inventory Management

An organized inventory speaks volumes about the efficiency of the enterprise. Accuracy of inventory details duly audited is a plus to help the financier validate claim integrity.

Protection from Elements

The shelf life of inventory in the business is important for finance. Enough measures adopted to protect inventory against natural elements for increasing its shelf life impresses the inventory financing companies.

Inventory Inspection

A business enterprise which is ready for surprise visits by the lender is one that follows best practices enhancing functional efficiency.

Sales Records Accuracy

Accurate sales record is important to ensure the repayment ability of the business. It is an indicator of well managed business.

Redundant Inventory

Redundant slow moving inventory that is not cashable reflects poorly on the management skills of the business. It makes business sense to avoid resource wastage.

Inventory financing advantages and disadvantages:

Before weighing the pros and cons of inventory loan, it is prudent to take a look at its redeeming features.

  • It unlocks blocked funds in inventory.
  • Enhance inventory as well as support liquidity.
  • Funding between 90% and 100% of the inventory value.

With such inherent benefits of seeking inventory finance for small business, it is also vital to look at all the pluses and minuses of such loans.


  • Short term advance loan for inventory purchase is an ideal solution to grow your stock to help generate healthy sales. A mobile business cycle of stock and sales are complementary to each other and the health of the business.
  • The inventory loan does not entirely stipulate the nature of fund use. A business can gain substantially by using an additional capital to expand product lines and equip sales channels to increase business opportunities.
  • It offers avenues to small and medium businesses to seek finance which is otherwise ineligible for traditional loans.


  • Being a short term credit, it may not meet the long term needs of the business. The repayment of an inventory loan is tied up with the life span of the inventory at hand.
  • It is suitable only to small businesses and is not particularly suited to the needs of large enterprises.

Eligibility Criteria:

Inventory loans are ideally suited for the following types of business enterprises and activities.

  • Travel agents.
  • Kirana store owners.
  • Distributors.
  • B2B buyers.

The various criteria set for the eligible businesses are:

  • The borrower must be at least 18 years in age.
  • He must be an Indian citizen.
  • The business must be operational for at least one year and in the same location.
  • The credit rating of the enterprise should be commendable.
  • The turn-around time is favorable for the business to earn a profit.
  • Some lenders also fix a minimum turnover amount to be eligible.
  • There should not be any credit default history with any lender.

Documents Required:

The list of documents is only general, and it is important to be guided by the specific requirements of the best inventory financing company on the business horizon.

  • Valid KYC documents of the promoter as well as the business including PAN card.
  • Bank statement for a specified duration.
  • Balance sheet and P&L Account Statement.
  • Personal ITRs.
  • Business Registration information.
  • Business appraisal report.
  • Copies of inventory invoices.
  • Collateral documents.

Application procedure for inventory Loan:

Most lenders allow online application process for inventory loans. At Lendingkart the steps typically involved are simpler than traditional loans:

  1. Online application.
  2. Submission of documents.
  3. Loan appraisal and valuation of the stock.
  4. Rate is offered, and the loan is sanctioned.
  5. Disbursal of the loan.

Fees and Charges of Inventory Loan:

Rate of Interest

11% to 30% per annum depending on the nature of the business


Short term. For line of credit and shelf life of the stock.

Loan amount

Between 90% and 100% of the inventory value

CIBIL rating

If required,  ideally around 700


Bullet payments. In the case of Line of credit it is flexible.

Inventory Financing FAQs:

1. How does the rate of interest for an inventory loan differ from a traditional loan?

Normally, the rate is higher than traditional term loans.

2. Where can one seek inventory finance in India?

In India Banks, NBFCs and Digital NBFCs extend inventory loan.

3. What is the form of repayment of the loan??

It is flexible, and the business needs a bank account to service the loan.

4. How is the inventory finance amount processed?

On submission of all requisite documents along with the application to the lender, the inventory in hand is valued for arriving at the loan amount.

5. How is the loan terms fixed?

The loan tenure is determined by the type of loan, In the case of line of credit, submission of periodic stock value statement is needed for fixing of the borrowing limit.

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