Loan type
Inventory and purchase order financing: funding goods you have not sold yet
Two related products that pay for goods before you sell them. Both are priced monthly, and both live or die on how fast the stock turns.
At a glance
| Inventory financing amount | $25,000 to $5 million, advanced against stock you own |
|---|---|
| PO financing amount | $25,000 to $10 million, paid directly to your supplier |
| Cost | 1% - 6% per 30 days |
| Advance rate on inventory | 20% to 50% of cost — low, because liquidation values are poor |
| PO financing coverage | Up to 100% of supplier cost on a confirmed order |
| Term | Usually 30 to 180 days, tied to the sales cycle |
| Collateral | The inventory itself, plus the resulting receivable |
| Time to funding | 1 to 4 weeks initially; days per transaction after setup |
A good fit when
You have a confirmed order or a proven seasonal sell-through, and the margin comfortably exceeds a monthly financing cost.
A poor fit when
The inventory is slow-moving, seasonal-fashion, perishable, or you are hoping it sells rather than knowing it will.
Two different products, often confused
- Inventory financing
- A revolving facility secured by stock you already own. The lender advances a percentage of its cost, you sell the goods, you repay. Advance rates are low — 20% to 50% is typical — because a lender liquidating your inventory recovers very little of what you paid for it.
- Purchase order financing
- The lender pays your supplier directly against a confirmed customer purchase order. You never handle the money. The goods ship, your customer is invoiced, and the invoice proceeds repay the financier. It solves the specific problem of an order you can win but cannot fund.
What PO financing requires
- A confirmed, non-cancellable purchase order from a creditworthy commercial or government customer. Consumer sales do not work.
- Finished goods. PO financing funds resale of completed products. If you are manufacturing or substantially assembling, most PO financiers will not touch it — that is a different, harder product.
- A gross margin that carries the cost. Financiers generally want at least 20% to 25% gross margin on the transaction, because their fee eats into it.
- A supplier who will work with a letter of credit or direct payment.
The cost, and the arithmetic that justifies it
Both products are priced per 30 days, commonly 1% to 6%. Annualized, that looks alarming. In context it often is not, because you are not borrowing for a year — you are borrowing for the 60 days between paying the supplier and collecting from the customer.
| Order value | Your cost of goods | PO financing at 3%/30d | Days outstanding | Fee | Your margin after |
|---|---|---|---|---|---|
| $200,000 | $140,000 | 3% of $140,000 per month | 60 | $8,400 | $51,600 |
| $200,000 | $140,000 | 3% of $140,000 per month | 120 | $16,800 | $43,200 |
How it usually gets combined
PO financing and invoice factoring are frequently used together, and many providers offer both. The PO financier pays the supplier; when the goods ship and the invoice is raised, a factor buys the invoice and repays the PO financier, releasing the balance to you. It is a clean structure and it lets a thinly capitalized business run orders far larger than its balance sheet.
The cost of that combined structure is real — you are paying two fees on one transaction — so it is a growth tool, not a general operating strategy.
Cheaper alternatives to check first
- Supplier terms. Net-60 from your supplier is free financing, and suppliers extend terms to keep accounts far more often than businesses ask.
- A customer deposit. On a large order, 30% to 50% up front is normal in many industries and costs nothing.
- A line of credit, if you have the history for it. Usually a third of the cost.
- An SBA 7(a) working capital facility, if the need is recurring rather than a single transaction.
Questions people actually ask
What is the difference between inventory financing and purchase order financing?
Inventory financing lends against stock you already own and have paid for. PO financing pays your supplier for stock you have not bought yet, against a confirmed customer order. If your problem is that cash is tied up in stock on the shelf, that is inventory financing. If your problem is an order you cannot afford to fill, that is PO financing.
Can a startup get purchase order financing?
Yes — this is one of the few products genuinely available to a young business, because the underwriting focuses on your customer's credit and your supplier's reliability rather than on your operating history. A new company with a confirmed order from a large, creditworthy buyer is a financeable transaction.
Why are inventory advance rates so low?
Because liquidation recoveries on inventory are poor. A lender forced to sell your stock is selling into a distressed market with no relationships and no time, and typically recovers far less than cost. Advance rates of 20% to 50% reflect that reality, not a lack of faith in your business.
Does PO financing work for manufacturing?
Usually not. Most PO financiers fund the purchase of finished goods for resale. If you are buying raw materials and manufacturing, the risk profile changes completely — production can fail in ways a resale transaction cannot — and you need a work-in-process or asset-based facility instead.