Inventory Financing Options Compared
Part of the Inventory Funding guide | Updated: April 2026
There is no single right way to fund inventory. The best option depends on how your business buys stock, how long it takes to sell, how predictable your revenue is, and how much flexibility you need between cycles.
This guide compares the four main inventory financing options available to UK businesses — so you can make an informed decision rather than defaulting to whatever your bank offers.
The 4 main options
Revolving credit facility
A revolving credit facility gives you a pre-approved credit limit that you draw from and repay repeatedly. I
Cost: You typically pay interest on what you draw, for as long as you hold it, though facility fees or other charges may still apply. If your stock sells quickly, you pay less.
Best for:
- E-commerce businesses with recurring order cycles
- Retailers managing seasonal buying
- Any business where inventory need is recurring rather than one-off
Watch out for: Facility limits tied to revenue — if your business is growing fast, you may need to revisit your limit every six to twelve months.
Term loan
A term loan provides a fixed lump sum repaid over a set period — typically 12 to 60 months — with fixed monthly payments regardless of sales performance.
How it works: You receive the full loan amount upfront. Repayments begin immediately, on a fixed schedule.
Cost: Usually an annual interest rate. May include arrangement fees. Some term loans include early repayment charges or early settlement conditions, so check before signing.
Best for:
- A single, large, one-off stock purchase — for example, acquiring a new product line or buying out a supplier's surplus
- Businesses with predictable, stable monthly cash flow that can service fixed repayments regardless of seasonal variance
Watch out for: Rigidity. If stock sells slower than expected, you are still paying the same monthly amount. No ability to draw again without taking a new loan.
Merchant cash advance
A merchant cash advance (MCA) provides a lump sum repaid automatically as a percentage of your daily or weekly card sales. The total repayment is fixed upfront via a factor rate — often around 1.1–1.5× depending on provider and risk profile.
How it works: You receive a cash advance. The lender takes an agreed percentage of your card revenue until the advance is fully repaid.
Cost: Factor rates look simple but can be expensive. For example, a £50,000 advance at a 1.3 factor rate would cost £15,000 regardless of how quickly you repay it. There is no benefit to repaying faster.
Best for:
- Businesses with high card transaction volume — hospitality, retail
- Short-term, seasonal cash gaps where the advance will be repaid within a few months
- Businesses that cannot access traditional credit
Watch out for For recurring inventory cycles, the cumulative cost of repeated MCAs can be higher than a revolving credit facility, depending on pricing, repayment speed, and usage. It also does not revolve — you take one advance, repay it, and apply again.
Supplier credit
Supplier credit — also called trade credit — is an arrangement where your supplier allows you to pay 30, 60, or 90 days after delivery rather than upfront.
How it works: You receive stock now and pay later. No lender involved. If you sell the stock before payment is due, you have effectively funded the purchase from your own revenue.
Cost: Often free if paid within agreed terms. Some suppliers offer early payment discounts — for example, 2% off if paid within 10 days. Late payment can damage supplier relationships or incur penalties.
Best for:
- Businesses with strong, established supplier relationships
- Situations where credit terms are long enough to cover the sell-through period
- As a complement to a revolving credit facility — use supplier credit where available, draw down funding for the rest
Watch out for: Availability. Not all suppliers offer credit terms, and those that do may reduce limits or tighten terms during periods of high demand — exactly when you need them most.
Quick comparison by business type
Next steps
To understand eligibility before applying: What you need to qualify for inventory funding →
Return to the Inventory Funding hub → to explore more guides.
This article is general information, not tax, legal, or financial advice — your accountant, solicitor, or a regulated adviser is best placed to advise on your specific circumstances