inventory financing definition

inventory financing

Type of asset based lending, it is a short-term working capital loan secured by the inventory purchased. As the inventory is converted into sales, the loan is gradually paid-off and (when it is fully satisfied) new inventory is bought with a new loan, and the cycle starts all over again. Inventory-financing interest rates are usually higher than for accounts-receivable financing because in the latter-case goods have already been sold. Also called inventory loan.

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