How quickly your inventory turns will point you at the loan terms that make the most sense for your business. For example, if you expect your inventory to turn in three or four months, it might not make sense to borrow money with a three- or four-year loan term. A shorter term might be more appropriate.

If you’re still paying this year for inventory you purchased last year (or two years ago) with a longer-term loan, it might make it harder to purchase inventory now. At least it could make it harder to borrow this year. Think of it the same way you would think of purchasing a car. You likely would not purchase a new car with a 30-year loan; it would make the overall cost of the car very expensive. And, who wants to still be making new car payments on a 25-year old car?

It’s possible a longer-term loan will have a lower annualized interest rate, but the total cost of the loan will likely be higher. Conversely, a short-term loan may have a higher annualized interest rate, but the total cost of the borrowed funds will likely be less (of course the periodic payment will likely be more). When you consider a small business loan for buying inventory, you should consider a number of factors, including the overall cost of the loan. Does it make financial sense, or will the total amount of interest you pay consume all of the profit in the merchandise you’re buying to sell.

Another way many business owners finance inventory purchases is with a business line of credit. Unlike a business loan, a line of credit allows the business owner to access part, or all, of the credit line, repay it, and access it again as needed. What’s more, interest is only charged on the credit the business owner uses.