by 
The Curious Bag
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Inventory is usually the second largest expense for a company other than payroll. Companies may need to find outside financing to help cover the costs of producing or holding inventory for sale.
Function
Manufacturing companies may offer their inventory as collateral to banks in exchange for cash funding through a bank loan. Loan terms are based on a company's credit status and income history.
Types
While banks will finance all types of inventory, companies should only finance inventory that will sell quickly in a short period of time. Technical or specialized inventory products may have small target markets, lengthening inventory turnover opportunities.
Benefits
Companies use inventory financing to raise cash before selling their inventory. This allows the company to pay vendors or finance existing operations without limiting their current cash flow.
Misconceptions
While inventory is similar to selling customer receivables for cash (receivables factoring), two main differences exist: inventory rights are retained by the manufacturer and inventory financing amounts are equal to the inventory's market value.
Warning
Banks may offer short-term credit lines to manufacturers for inventory financing. Unfortunately, these credit lines may have high interest rates or other unfavorable loan terms.
Source:
Investorwords: Inventory Financing
Business Finance: The Challenges and Solutions to Retail Inventory Financing
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