Inventory Financing Calculator

What share of gross profit the money costs.

What share of gross profit the money costs. The right comparison is not against a bank rate.

Written and maintained by Mohit PatelLast checked August 4, 2026How we build these

Currency

Purchase order value

Share financed

Monthly rate

Arrangement fee

Months to sell through

Gross margin on the stock

Cost of the financing

$5,152

27.6% annualised

Amount financed$56,000

Interest over the period$4,032

Arrangement fee$1,120

Share of gross profit consumed8.2%

The financing takes 8.2% of the gross profit on this stock. That is acceptable if the alternative is not buying the stock at all, and expensive if you could have waited a month and paid cash.

How the Inventory Financing Calculator works

The right comparison is not against a bank rate. It is against not buying the stock at all. Financing that takes a fifth of the gross profit is expensive money and still worth it if the alternative is an empty shelf.

Also known as: stock finance cost · inventory loan calculator · cost of financing stock

What inventory finance is for

Inventory finance funds the gap between paying for stock and selling it. It is short-term by design, secured against the goods or against the business, and priced accordingly.

The forms differ. A revolving facility lets you draw and repay as stock cycles. A term loan against a specific purchase repays over a fixed period. Purchase order finance pays the supplier directly against confirmed orders. Each suits a different pattern and they are not interchangeable.

The common thread is that the cost should be compared against the margin on the stock it funds, not against a savings rate. Finance at 18% annualised on stock turning four times a year costs roughly 4.5% of the goods value per cycle, which against a 40% gross margin is a reasonable trade and against a 12% margin is not.

Reading the real rate

Inventory finance is frequently quoted as a monthly rate or a flat fee, both of which understate the annual cost. A 2% monthly rate is not 24% a year; compounded it is closer to 27%. A flat 6% over three months on a facility repaid in instalments has an effective rate roughly double the headline.

Ask for the annual percentage rate or work it out. The calculation that matters is total cost of credit divided by average balance outstanding, annualised. Lenders who resist providing it are usually quoting something that looks better than it is.

Then add the fees. Arrangement fees, drawdown fees, non-utilisation fees on undrawn facilities, and early repayment charges. On a short facility the fees can exceed the interest, which makes the headline rate close to irrelevant.

Whether the stock justifies it

The test is whether the gross margin on the funded stock exceeds the cost of funding it over the holding period, with enough left to be worth the risk.

Fast-moving stock passes easily. Stock turning ten times a year carries roughly a tenth of the annual rate per cycle, so even expensive finance is affordable. Slow stock fails badly: goods sitting for eight months carry two thirds of the annual rate, which on most margins wipes out the profit.

Which means inventory finance is a tool for scaling proven lines rather than for funding new ones. Using it to buy stock you are not sure will sell combines the two risks in the worst way, since the finance cost accumulates precisely while you are discovering the product does not move.

What the lender will want

Security is usually a debenture over the business, sometimes a specific charge over the stock, and very often a personal guarantee from the directors. The personal guarantee is the one to read carefully, because it removes the limited liability that the company structure provides.

Covenants come with larger facilities and are worth understanding before signing. Minimum stock turn, maximum leverage, and information covenants requiring monthly management accounts. Breaching a covenant technically entitles the lender to call the facility, and it happens more often through late reporting than through actual distress.

Field audits apply to asset-based lending, where the lender periodically verifies the stock exists and is worth what you say. They are billed to you and they are intrusive. Worth budgeting for and worth knowing about before the first one is scheduled.

The alternatives worth exhausting first

Supplier credit is nearly always cheaper and frequently free. A supplier offering 60 days is providing two months of inventory finance at no cost, and many will offer terms after a period of reliable trading if asked. Most sellers never ask.

Reducing the need is the other route and the one with no ongoing cost. Faster stock turn, tighter forecasting, smaller more frequent orders. Each reduces the amount that needs funding, permanently, rather than paying to fund it.

Revenue-based finance and merchant cash advances are frequently offered to ecommerce sellers and are usually the most expensive money available. They are fast and require little documentation, which is why they are attractive in a squeeze, and the effective annual cost commonly runs 40% to 80%. Worth comparing properly rather than accepting because the application took ten minutes.

Where to go next

The Inventory Financing question rarely arrives on its own. These are the ones that usually come with it:

Purchase Order Financing Calculator — Expensive money for an order you could not otherwise take.
Line of Credit Cost Calculator — Fees on the facility, interest on the balance.
Merchant Cash Advance Cost Calculator — A factor rate is not an interest rate.
Etsy Fee Calculator — Every Etsy fee on one sale, itemised.

Not financial advice. Marketplace fees change, and they vary by country, plan and seller status. Every rate here is an editable default, not a quoted price, check the platform's current fee schedule before you price a product against it. This is not tax or business advice.

Frequently asked questions

What does inventory financing cost?

Commonly 1.5% to 3% a month on the financed amount plus an arrangement fee. Annualised that is well into double digits, which is normal for short-term secured lending.

How do I judge whether it is worth it?

Compare the financing cost against the gross profit on the stock it lets you buy. If it consumes a modest share and the stock will sell, it is usually worth it.

What is the risk?

Stock that does not sell as fast as planned. The financing cost accrues monthly whether or not the goods move, which turns a slow season into a compounding problem.

Are there cheaper alternatives?

Supplier credit is usually cheapest, then a bank facility, then specialist inventory finance, then merchant cash advances. Work down that list in order.