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What is inventory-based financing and how does it work?

Inventory is often seen as a cost center, tying up cash that could otherwise support growth.
Inventory-based financing changes that perspective. It enables companies to convert part of their stock into immediate liquidity, without adding debt or restrictive guarantees.

This article explains how the model works in practice and why it can make a real difference for many businesses.

In summary: 5 key takeaways

  • Access up to 80% of your inventory’s value in immediate cash, with no loans or personal guarantees. 
  • Operate almost off-balance sheet through a temporary inventory sale (with a repurchase agreement), which is not classified as a credit. 
  • Keep full control of your operations: your stock remains on-site and continues to flow normally. 
  • Receive funds in about 60 days, faster than a traditional bank loan. 
  • Use a flexible, renewable solution to finance seasonal peaks, expansion projects or working capital need.

Discover our tailor- made approach for your business.

1. What exactly is inventory-based financing?

Inventory-based financing is an innovative cash flow solution designed for SMEs and mid-sized companies with significant stock levels.
Instead of taking out a traditional bank loan that often requires personal guarantees or real estate collateral, the company temporarily transfers ownership of part of its inventory to a financing partner such as Finrack. In exchange, it immediately receives a percentage of the stock’s value.

Legally, this is not a loan but a repurchase agreement. The company retains full use of its goods and can continue selling them as usual, with the option to repurchase them gradually or in full at the end of the period.

This model helps businesses unlock liquidity tied up in inventory, without increasing their debt or administrative burden.

2. How does the process work?

The financing of all or part of a company’s inventory takes place in several stages.

Phase 1 : Evaluation and contract setup

After your ERP or WMS confirms the stock valuation, type and minimum required amount (€250,000 at Finrack), a repurchase contract is signed. Ownership of the stock is transferred to the financier, while storage and management remain unchanged.

Phase 2 : Immediate cash release

The financier transfers the agreed percentage of your inventory’s value. This rapid cash injection can fund purchases, product launches, export development or other growth initiatives.

Phase 3 : Normal operations and gradual repurchase

You continue selling goods at your usual pace. Each sale triggers the obligation to replenish stock, keeping its value constant throughout the agreement. There is no strict repayment schedule. At the end of the contract (typically 12 months, renewable), you can repurchase the remaining balance and regain full ownership.

3. The main benefits of inventory-based financing

Inventory-based financing brings several strategic advantages. By optimizing your working capital, you can ease pressure on cash flow without increasing debt. The transaction does not appear as a liability and therefore preserves your financial ratios.

Funds are generally released within about 60 days through a digital process integrated with your ERP or WMS. The absence of escrow or physical supervision ensures continuity of operations, while the off-balance-sheet nature of the transaction maintains your borrowing capacity and management flexibility.

For an enhanced version of this model, explore Finrack+, our premium inventory-based financing solution.

4. Which companies can benefit most?

Inventory-based financing is particularly valuable in situations such as:

  • Seasonal peaks (sales periods, holidays) requiring large pre-purchases of stock
  • Product launches that need upfront production funding before revenue is collected
  • Expansion projects involving new locations or export operations that demand quick investment cycles

It is ideally suited to manufacturing, trading and agri-food SMEs equipped with reliable inventory management systems. CFOs and managing directors will find it a practical tool to support growth while managing cash flow with agility.

Explore the sectors we finance and discover case studies of SMEs that have successfully unlocked liquidity through Finrack.

5. Frequently asked questions (FAQ)

What is inventory-based financing?
It is a repurchase-based transaction that allows you to access the value of your stock immediately while keeping full use of your goods and the option to repurchase them later.

How does it work in practice?
You value your inventory (via ERP/WMS), sign a temporary sale contract, receive funds within about 60 days, and replenish stock progressively to maintain constant value.

What are the benefits for cash flow?
It releases off-liabilities liquidity without personal guarantees or debt impact, giving you flexible access to cash where banks often provide no solution.

Who is it for?
Mainly SMEs and mid-caps with significant inventory levels and seasonal or growth-related cash constraints, looking to optimize working capital without taking on new debt.

How do I apply with Finrack?
Visit our Contact page to connect with a dedicated advisor and tailor your inventory-based financing solution. You can also consult our detailed step-by-step guide to learn more about the process.

Written by Xavier Corman, CEO & Co-founder
About Finrack 

– helping companies manage their inventory and cash flow with greater agility and performance.