Loan types

Inventory financing, and the appraisal that ruins everyone's projection

Lenders advance against liquidation value, not what you paid. Here is what $250,000 of goods really borrows, what the carry costs, and how turnover decides the whole thing.

6 minute readUpdated 2026-07-29Written by the Exp Capital desk

Inventory financing is money borrowed against goods you own or are about to own. It is the hardest collateral in commercial lending to value and the easiest to overestimate, because the number in your accounting system and the number a lender will advance against are almost never within shouting distance of each other.

There are four distinct products under this one name, and the price difference between them is enormous. An inventory line inside a monitored facility. A standalone inventory loan. Floor plan financing for titled goods like vehicles and equipment. And a general working capital product you happen to spend on stock. Getting into the right one matters more than negotiating the rate inside the wrong one.

Four ways to finance the same goods, from cheapest to worst

Why the advance is half of what you expect

A lender does not advance against your cost and it certainly does not advance against retail. It advances against net orderly liquidation value, which is what an appraiser thinks a liquidator would net after selling the goods over several months and paying the costs of doing so.

The standard formula is the lesser of two numbers: roughly 50 to 65 percent of your landed cost, or 80 to 85 percent of the appraised NOLV. On $250,000 of goods at cost, if the appraiser puts NOLV at 60 percent, then 85 percent of that NOLV is $127,500 and 50 percent of cost is $125,000. You are borrowing $125,000 against a quarter million dollars of stock, and that is a good appraisal outcome.

What $250,000 of inventory at cost typically borrows, by category
Inventory type	Typical NOLV	Realistic advance	Why
Commodity finished goods with a broad resale market	55 to 70 percent	$125,000 to $150,000	A liquidator can move it quickly at a known price
Branded consumer goods, current season	45 to 60 percent	$100,000 to $125,000	Sells, but resale is restricted and seasons expire
Spare parts and consumables	35 to 50 percent	$75,000 to $110,000	Deep catalogs move slowly even when they eventually sell
Work in process	0 to 15 percent	$0	Half finished goods have almost no buyer in a liquidation
Custom, private label, or branded packaging	0 to 20 percent	Usually $0	Nobody else can sell something with your name on it
Perishable or dated stock	0 to 25 percent	Usually $0	The clock runs out before the liquidation does

Three quarters of the disappointment in this product comes from that table. If most of your balance is work in process or private label, the honest answer is that inventory is not your collateral and the conversation should move to receivables or equipment instead. Read orderly liquidation value before you build any projection off your stock balance.

What the carry actually costs

Assume you finance $250,000 of goods on an inventory line at 13.5 percent with a 1 percent draw fee, and you sell them at a 40 percent gross margin, so the stock generates $166,667 of gross profit when it clears.

Cost of carrying $250,000 of inventory, by months on hand. The flat line is a fixed payback product, which charges the same whether you turn in a month or a year.

At 90 days on hand the carry costs about $10,900, which is 6.5 percent of the margin. At 180 days it costs about $19,400, or 11.6 percent. At a full year it costs about $36,300, or 21.8 percent of everything the goods earn. Nothing about the loan changed. Only how long the stock sat.

Now put the same $250,000 on a short term advance at a 1.24 factor over eight months. The cost is $60,000 regardless of whether you turn the goods in 30 days or 300, because the total payback is fixed at signing. That is 36 percent of the gross margin on a 90 day turn, more than five times what the line costs for the same period. If your inventory turns quickly, using advance money to buy it is one of the most expensive habits in small business finance.

Floor plan is a different animal

If you sell titled goods, cars, trucks, trailers, powersports, boats, or dealer equipment, floor plan financing is a separate market with much better economics. The lender pays the manufacturer or auction directly, takes the title as collateral, and you repay when the unit sells.

Advance: Often 90 to 100 percent of dealer invoice or auction purchase price, because a titled unit has a transparent resale market
Rate: Commonly prime plus 1 to prime plus 4 on new inventory, higher on used and auction units
Free period: Many programs give 60 to 120 days of interest free or subsidized carry on new units, paid for by the manufacturer
Curtailment: A required principal paydown at set intervals, often 10 percent at 90 days and again at 180, whether the unit sold or not
Audits: Physical unit counts, monthly or on short notice. A unit sold and not reported is the single fastest way to lose the line
Sold out of trust: Selling a floored unit and not remitting the payoff is treated as conversion, not as a late payment

The curtailment schedule is what catches new dealers. A unit that has not sold at 90 days still demands cash, so a lot that ages costs you money on a schedule you did not set. Plan the floor plan around your actual days to turn, not the days you hope for.

What a lender wants to see before they touch inventory

A perpetual inventory system that reconciles. If your counts come from a spreadsheet updated quarterly, the file stops here. Lenders need a system report that ties to the general ledger.
An aging by SKU or category. Anything over 180 days is usually reserved out. Over 365 days is almost always ineligible.
A recent third party appraisal. $8,000 to $25,000, paid by you, redone annually. Some lenders accept a desktop appraisal for smaller facilities.
A landlord waiver for every warehouse you lease, so the lender can access the goods without fighting your landlord. See the landlord waiver, because a landlord who refuses to sign can shrink your line by the value of that location.
Insurance with the lender named as loss payee, at replacement cost, on the full inventory value.
Clean lien position. An existing blanket UCC-1 has to be subordinated or terminated before anyone lends on the goods.

The inventory report a lender wants, and what each line decides

The smaller version of the same math

Not every deal is a quarter million dollars. On a $50,000 buy at a 40 percent margin, an inventory line at 13.5 percent held 90 days costs about $2,164 including the draw fee, against $33,333 of gross profit. That is 6.5 percent of the margin, the same ratio as the larger deal, because the arithmetic scales. The difference at this size is that most monitored facilities will not write a $50,000 line at all, so the realistic options become a general line of credit, a business credit card float, or purchase order financing if the goods are already sold.

What Exp Capital does with this

Exp Capital Solutions is a broker. We do not lend against inventory, we do not run appraisals, and we do not set advance rates. What we do is ask what your stock actually is before anyone gets excited about the balance sheet number, tell you honestly what it will appraise at, and place the file with the funding partners who write your category. When the goods will not appraise, we say so early rather than letting you pay for an appraisal to find out, and when a receivables line or a term loan covers the same gap for less, we recommend it even though it pays us less.

Questions people actually ask

How much can I borrow against my inventory?

Commonly the lesser of 50 to 65 percent of your landed cost or 80 to 85 percent of appraised net orderly liquidation value. In practice most borrowers land near 50 percent of cost. Work in process, private label goods, and perishables usually advance at zero regardless of what they cost you.

Do I need an appraisal for inventory financing?

For a monitored inventory line, almost always. A third party liquidation appraisal runs $8,000 to $25,000, is paid by you, and gets refreshed annually. Smaller standalone loans sometimes accept a desktop appraisal or a category based advance rate, which is faster and cheaper but usually means a lower advance.

Can a startup get inventory financing?

Rarely as a standalone line, because there is no purchase and sale history to appraise against. The realistic path for a new business is purchase order financing when the goods are already sold to a creditworthy buyer, supplier terms, or a business credit card float. Build twelve months of turn history first.

What is the difference between inventory financing and floor plan?

Floor plan is inventory financing for titled goods like vehicles and equipment, where the lender holds title as collateral and pays the manufacturer or auction directly. Because titles are transparent and resale markets are liquid, advances reach 90 to 100 percent of invoice and rates are far lower than general inventory lines.

Is it cheaper to use a short term loan to buy inventory?

Almost never, if the goods turn quickly. A fixed payback product charges the same total whether you sell the stock in 30 days or 300, while an inventory line stops charging when you repay. On a 90 day turn, a 1.24 factor advance costs roughly five times what a 13.5 percent line costs.

Why does my lender exclude some of my inventory?

Because a liquidator could not sell it. Work in process, custom or private label goods, branded packaging, dated or perishable items, obsolete SKUs over a year old, and goods sitting in a warehouse whose landlord will not sign a waiver all get reserved out of the borrowing base.

Keep reading

Purchase order financingFor stock that is already sold before it exists.Asset based lendingWhere an inventory line usually lives, alongside receivables.