An example of of how inventory financing works is as follows: A vehicle dealership named Cadmium Motors needs to expand its inventory to keep up with a seasonal rise in new vehicle orders and new car sales. To meet the rising demand, the dealership needs to purchase new cars from a vehicle manufacturer named Kree Vehicles.

To get a better sense of how inventory financing works, let’s take a look at an example: Suppose that you run a car dealership and want to buy $1 million worth of new cars. You approach a lender for an inventory financing loan, and they hire an independent appraiser to value the inventory (note that online lenders generally won’t hire appraisers).

For example, a seasonal business, such as a holiday decor manufacturer or a sweater maker, can benefit from inventory financing to help tide them over during slow times. • Small and medium-sized businesses that cannot obtain a traditional loan can easily use inventory financing, even if it has a higher interest rate than a conventional loan.

Let's say a car dealer wants to increase inventory, buying more cars because of an expected increase in new car sales. The dealer must purchase the inventory from the car manufacturer, and vehicles are expensive. The dealer gets a loan from a financing company, based on the value of the cars.