Inventory Finance Agreements

Inventory financing is a specialized type of business loan or line of credit that allows companies—such as auto dealerships, retail stores, and wholesalers—to purchase inventory without paying upfront. This financing is typically secured by the inventory itself, meaning the lender retains a security interest in the goods until they are sold and the loan is repaid.

A common example is floor plan financing, which is widely used by vehicle dealerships to stock their lots with new or used cars. The dealership secures a line of credit to purchase vehicles from manufacturers or suppliers and repays the loan incrementally as each vehicle is sold. Until repayment is made, the lender holds a lien on the financed inventory, ensuring repayment in case of default.

For businesses reliant on high-cost inventory, managing inventory financing effectively is crucial to maintaining cash flow and profitability. Borrowers must carefully monitor repayment schedules, interest rates, and loan terms to avoid excessive debt accumulation and ensure sustainable operations.