Inventory financing is business funding used to buy stock, usually secured by the inventory itself. Orchardmark Financial, a small-business funding broker in Scranton, Pennsylvania, explains how it works, how it compares with credit lines and factoring, and what partners review for Lackawanna County retailers and wholesalers, then sends requests to lending partners, which decide and set terms.
| Built for | Stock bought before it sells |
|---|---|
| Secured by | The inventory, recorded through a UCC filing |
| Repaid | On a schedule or as goods are sold |
| Lackawanna County context | 809 retail and 218 wholesale employers (CBP 2023) |
| Who decides | The lending partner |
How inventory financing works
The partner pays for the stock, either directly to the supplier or to the business, and takes a security interest in the goods. The business then repays on a fixed schedule or as items sell, depending on the structure. Because the inventory backs the balance, partners usually advance only part of its value, and the share depends on how easily the goods could be resold: packaged goods with steady demand count for more than seasonal or custom items.
Inventory financing is for stock that will turn into sales. It is a poor fit for slow-moving goods, because the business pays carrying costs on stock that is not earning.
What a partner asks about the stock
- What you are buying, from whom, and at what cost.
- How quickly that product line has sold in the past.
- Where the stock is kept and what insurance covers it.
- How the business tracks stock: a point-of-sale system, an inventory count, or both.
- Existing liens on business assets, which a lien search will show.
A clean inventory report and sales history matched to bank deposits answer most of these questions before they are asked.
Collateral and UCC filings
When a partner takes a security interest in inventory, it usually records a UCC financing statement, a public notice that it has a claim on those assets. Other lenders can see the filing. If an earlier lender already holds a blanket lien on all business assets, a new inventory partner may need that lender's agreement, so check what is on file before you apply. Ask any partner exactly which assets its filing will cover, and how and when it is released after payoff.
Floor plan financing, explained
Floor plan financing is a type of inventory financing for high-value items that are sold one at a time and tracked by serial number, such as vehicles, boats or large equipment held on a dealer's lot. The partner pays for each unit, and the dealer repays that unit's balance when it sells. The partner typically checks the stock in person from time to time to confirm the units are still there.
Inventory financing or factoring?
They finance different assets. Inventory financing is borrowing against goods still waiting to be sold. Factoring is the sale of invoices for goods or services already delivered: a factor pays part of the invoice value now and collects from your customer. A wholesaler with long payment terms might use both at different points in the same cycle. Neither is a merchant cash advance, which buys a share of future sales and is not a loan.
Stock financing, a revolving line or working capital: which one?
Use inventory financing when one identifiable purchase can secure itself. Use a line of credit when you restock in different amounts through the year and want to draw only what each order needs. Use working capital when the need is broader than stock, such as payroll plus inventory plus rent. Our article on inventory financing types walks through the options for a single store, and the full comparison has all six side by side.
Retail and wholesale in Lackawanna County, PA
Lackawanna County had 809 retail employer establishments in 2023, with 11,867 paid employees and about $385.2 million in annual payroll; 373 of them had fewer than five employees. Wholesale trade added 218 establishments and 4,044 employees (U.S. Census Bureau, County Business Patterns 2023). A further 1,199 retailers in the county reported no paid employees in 2024 (U.S. Census Bureau, Nonemployer Statistics 2024).
Retail and wholesale context sits with the other sectors under financing by sector, and statistics on local employers are on the city page. Businesses selling taxable goods should also have their state sales tax registration current; the Pennsylvania sales tax license guide explains why partners may check it.
Before you sign
- Confirm what share of the inventory value the partner will advance.
- Ask how repayment works: a schedule, or as each item sells.
- Read exactly which assets the UCC filing covers.
- Ask about inspection, reporting and audit requirements.
- Get the total cost in dollars for the expected holding period.
How a request works covers the steps.
By Orchardmark Financial · Updated
