Guide

A supplier will take 15 percent off if you buy six months of stock now. Is borrowing to do it worth it?

Only if the discount, in dollars, is larger than the total cost of the money over the months the stock takes to sell — plus the storage and the risk it does not sell. A 15 percent discount on $60,000 is $9,000; a working capital loan for that $60,000 over six months might cost $6,000 to $12,000 depending on the offer. Get the funding's total repayment in dollars, put it next to the discount, and include the carrying cost. Then decide.

The comparison, done properly

The discount is easy: 15 percent of $60,000 is $9,000 saved. The cost of money is the number funders do not volunteer: the total dollars repaid on a $60,000 advance or loan, minus $60,000. Ask for it; it is the only figure that makes this decision possible. A term loan over six months might cost a few thousand dollars; a factor-rate advance at the higher end can cost more than the discount. The same purchase is a good idea with one product and a bad one with the other.

Then the carrying cost. Six months of stock takes space, insurance, and the risk that demand shifts, a product is discontinued, or a season ends with a third of it still on the shelf. Owners who have done this describe the unsold third as the real price of the discount.

Cost of $50,000, by product

BANK TERM LOAN60 months · hardest to qualify for$13,700SBA 7(A)120 months · lowest monthly, slowest$34,200ONLINE TERM LOAN18 months · days, not months$11,500LINE OF CREDIT12 months · pay only on what you draw$7,400MERCHANT CASH ADVANCE9 months · fastest, no score floor$15,000$0$36,000
Total cost of capital on a $50,000 facility, with the term stated on every bar — a comparison that hides the term is not a comparison. An advance is the most expensive money here and the only one that reaches a business the bank has already declined. Illustrative figures at mid-range pricing, not an offer.

When it clearly pays

Stock that you will sell at a known rate — a consumable you reorder every month, a part you fit every week, a product with two years of steady sell-through. A discount on a staple is a discount on money you would spend anyway, and if the total cost of the money is less than the saving, the arithmetic is simple. It pays best when the money is cheap: a line of credit drawn for the purchase and repaid as the stock sells, or a term loan with interest that stops when you repay.

When it does not

Fashion, seasonal goods, anything with a model year, anything you have sold for less than a year. A discount on inventory that might not sell is a bet, not a saving, and the borrowed money has to be repaid whether the shelf clears or not. And a discount funded on a fixed-factor advance repaid daily over six months is often a wash at best: the money costs about what it saves, and the business carries the debit through the months the stock is still on the shelf.

The version that usually works better

Ask the supplier what discount they will give on three months of stock rather than six, and whether they will give terms — net-60 — on the larger order instead of a discount. A supplier who wants the volume will often do one or the other, and terms cost nothing. Borrow only for the piece that neither covers, on a product whose total cost in dollars you have seen in writing before you sign.

Sources

Related questions.

Is an advance ever the right way to fund a bulk buy?
When the discount is large, the stock is a staple, and the total repayment in dollars is clearly below the saving. It happens. It is rarer than the sales pitch suggests, and the arithmetic has to be done every time.
Does buying six months of stock help my funding applications later?
Inventory does not show in bank statements as anything but money that left. A funder reads deposits. A large purchase followed by strong sales reads well; a large purchase followed by flat sales reads as a business that spent its cash.
What about a business credit card with a zero-percent period?
If the supplier takes it without a surcharge and the balance clears inside the promotional period, it can be the cheapest money on this page. The limit and the surcharge are the usual reasons it does not work.

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