Inventory is where CPG brands either compound growth or quietly bleed.
And in 2026, the margin for error is thinner. Lead times still swing. Tariffs can change landed costs overnight. Marketplaces hold payouts. Retail wants terms. Meanwhile your best channel this month might not be your best channel next month.
So if you're building an asset-light brand - outsourced manufacturing, lean team, marketing as the engine - inventory funding isn't a "finance problem." It's an operating system problem.
I started my career inside traditional banking. That's where I first saw the systemic lending gaps up close. Profitable, growing consumer brands were getting declined because they didn't look like factories on paper.
I built Paperstack because I couldn't unsee that disconnect.
This article is how I'd explain inventory funding in 2026 if we were sitting across the table. Debt vs. equity. What actually works. What sounds safe but isn't. And how to choose capital that grows in rhythm with your brand.
Why inventory funding feels harder than it should
Here's the truth: most inventory pain isn't caused by low demand.
It's caused by timing.
You pay your manufacturer early. You wait for production. You pay freight. You pay storage. You sell. Then you wait again - especially if you're on Amazon or wholesale. That gap is where healthy brands get squeezed.
And you're not alone in needing capital for "normal" stuff like inventory. In 2024, 56% needed it for operating expenses like inventory and payroll. That's the majority of the market saying the same thing: the business is working, the timing is not.
Now add one more layer. Even when you apply, you might not get what you plan for. In 2024, 41% got the full amount they requested. That matters because many brands build inventory plans assuming capital will show up exactly when they need it.
That's how you end up negotiating time with suppliers instead of building the brand.
The first decision: are you funding something recurring or something new?
Before you compare debt and equity, ask a simpler question.
Is this spend recurring, or is it experimental?
Inventory reorders are recurring. Payroll is recurring. Always-on marketing is recurring. These are the things you do over and over to keep the machine running.
New product development is different. So is R&D. So is a new category launch where you're still figuring out product-market fit.
My point of view is consistent: equity capital is used for R&D purposes and new product launches. Non-dilutive capital is for recurring expenses like inventory, marketing, payroll.
Why do I feel so strongly about that?
Because recurring costs will keep showing up. Equity is permanent. If you use permanent dilution to pay for something that repeats, you will feel that decision for years.
Equity for inventory: why it feels safe, and why it can be dangerous
I see founders treat a Series A like a safety net. I get it. There's no monthly repayment. There's runway. There's psychological relief.
But inventory is not a one-time decision.
Most e-commerce and CPG brands reorder inventory anywhere from two to six times per year. If you train your business to fund reorders with equity, you've built a habit that forces you to keep selling ownership just to stay in stock.
That's why I call it unsustainable. It's not dramatic. It's math.
You can build a great brand and still end up barely owning it.
The exception I've seen: early-stage creators with no track record
There is one scenario where I've seen equity-for-inventory make sense.
Very early on, some influencers or creators raise initial equity and use part of it to fund the first inventory run. They have no credit history. They have no operating track record. They're doing trial and error.
In that situation, equity is helping them test market fit without draining personal savings.
But once you have history - repeat customers, sell-through patterns, predictable contribution margins - you should start protecting your cap table. That's when the conversation shifts toward non-dilutive capital that matches your cash flow cycle.
Why "selling out" is not a win
Inventory funding isn't only about avoiding stockouts. It's about protecting your marketing economics.
I'll say it plainly: it shouldn't be celebrated when the product is sold out. A lot of the time, selling out is a failure of planning. Sometimes it's a financial failure. Sometimes it's operational.
Here's what happens when you sell out after pushing a campaign.
You already invested upfront in creatives, marketing spend, and ad spend. You did the hard part. You got the customer to the checkout. Then they can't buy.
Now you have a new problem. Your CAC effectively rises because you have to rebuild the relationship with the customer. You retarget them. You email them. You try to win back trust. Some of them never come back.
I've seen this hit hardest during a virality moment. A brand gets mentioned by an influencer. Traffic spikes. Inventory wasn't built for it. Customers show up ready to buy and leave disappointed. If they were buying for a deadline - like a holiday gift - trust breaks fast.
This isn't just "my opinion." Out-of-stocks are expensive at scale. Roughly $984B per year is lost globally due to out-of-stock situations. Online, it's even more direct: about 69% will abandon a purchase if an item is out of stock.
So when you're deciding how to fund inventory, don't only think about "cost of capital." Think about the cost of losing momentum after you already paid to acquire demand.
Why banks still decline asset-light brands (even the good ones)
This is where my banking background matters.
When I worked in banking, I kept seeing the same pattern. Strong consumer brands were being declined, not because they were unprofitable, but because traditional underwriting was built for asset-heavy businesses.
One example that stuck with me was a DTC beverage brand doing over $3M in annual revenue. Customers loved them. Margins were healthy. Cash flow was steady.
They still got declined.
Behind the scenes, the bank saw three red flags. They had no hard assets because manufacturing was outsourced. Their revenue had seasonal swings because summer demand was stronger. And their marketing spend looked like "expenses," not growth investment.
A bank risk model built for factories reads that as instability. But in commerce, that can be efficiency. The brand was selling through, holding healthy contribution margins, and managing cash flow timing in a normal way for the category.
That mismatch is the systemic lending gap.
Traditional debt usually wants collateral. Modern commerce needs capital that understands cash flow quality - how predictable it is, how the timing works, and whether the revenue is sustainable.
If you're an asset-light CPG brand and a bank is telling you "no," it's not always about you. It's often about the template they're forcing you into.
Debt for inventory: the good, the bad, and the structured
Debt is not one thing. It's a category.
Some debt is helpful and cheap when you qualify. Some debt looks cheap but becomes restrictive. Some debt behaves well when revenue is steady and becomes a problem when seasonality hits.
In 2026, you need to stop evaluating debt like a shopping cart. You need to evaluate the structure behind non-dilutive capital.
Bank loans and lines of credit
If you can qualify for a bank facility that matches your needs, it can be a solid part of your capital stack.
But the process is slow. Banks often want tax returns, financial statements, projections, and time. From application to approval, you're usually looking at weeks at minimum, and realistically several months.
That timeline doesn't care about your production schedule.
And for brands doing a few million in revenue with no hard assets, banks often push you toward personally guaranteed credit products with limits that don't match what a scaling brand actually needs.
That's why you see so many founders quietly stuck. They're "too big" for tiny credit cards and "too asset-light" for traditional commercial loans.
Channel-specific lenders (the repayment maze)
Another common approach is stacking lenders by channel.
One lender underwrites Shopify. Another offers wholesale factoring. Another advances against Amazon receivables. On paper, it looks like a creative solution.
Operationally, it turns into a mess. Different repayment schedules. Different rules. Different dashboards. Different contacts. Your team spends time juggling repayments instead of running the business.
I've seen this pressure show up clearly with a CPG brand we worked with. They had strong repeat customers, great margins, and steady month-over-month growth. Their biggest constraint wasn't demand. It was cash flow timing.
They had to pay suppliers around 60 days before receiving inventory. Then they waited weeks for platforms like Amazon to release payouts. Revenue was split across Amazon, Shopify, and wholesale. Other capital providers were only willing to underwrite one channel at a time.
The result was exactly what you'd expect: multiple lenders, multiple repayment schedules, more stress on the team.
What they needed was one capital plan that reflected the full performance of the business.
Revenue-based financing (RBF) and cash-flow-based facilities
This is the category I built Paperstack around, because it matches how consumer brands actually operate.
Revenue-based financing works when underwriting is based on performance and timing, not on how many hard assets sit on a balance sheet. It can be especially useful when you're multichannel and your cash inflows don't land in one clean pattern.
The key is structure. You want repayment mechanics that protect your cash flow, not mechanics that punish you when you have a great month or squeeze you when you have a slow one.
At Paperstack, we underwrite cash flow quality. We look at predictability, timing, and sustainability. We also look at marketing spend differently than banks do. Banks often treat it as "burn." We treat it like an investment engine when it's tied to measurable return, like ROAS and contribution margin.
And we built this after a pivot that taught me something important.
Paperstack started as a CFO analytics platform. We helped brands see their numbers in real time. Then founders told us, over and over, "This is great, but I don't just need visibility. I need capital to act on what I'm seeing."
They were right. Data alone doesn't move a business forward - capital does, when it's deployed with insight.
The 2026 inventory unlock: stop taking lump sums
A lot of founders have a lump-sum mindset.
They get approved for a large amount and take it all at once. It feels safe. It also creates unnecessary pressure on cash flow.
I use a simple analogy here: taking the full amount immediately can feel like maxing out a credit card. You don't do that in your personal life unless you have to. In business, it's the same idea.
Just because your business qualifies for a million dollars doesn't mean you have to take it all.
Tie your draws to manufacturing milestones
Manufacturing cash flow is usually predictable. Most co-packers require a deposit upfront, often around 30%. Then production takes time - anywhere from 30 to 90 days. Then the remaining payment is due before goods ship.
If you take the full facility upfront but only send the deposit, the rest sits in your bank account unused. You're paying for capital that stays in the bank account unused. That cost hits your bottom line and your daily cash flow.
A tighter approach is to draw capital in sync with your supplier payment schedule. Take what you need for the deposit. Wait during production. Draw the remaining amount right before shipment.
This isn't a fancy trick. It's basic discipline. It reduces cost. It keeps your cash lighter. It gives you room to keep marketing running when performance is strong.
Why we built Paperstack's "Capital Wallet" this way
This thinking is exactly why Paperstack doesn't do the "small, one-off advance" model.
We're a direct lender, not a broker. We built our Capital Wallet as a revolving facility with large commitments, often in the $1M to $3M range, because serious brands need a real operating buffer.
But brands also shouldn't be forced to take it all at once. So we structured it around tranches. Most brands draw in the $100K to $500K range every 45 to 60 days, depending on their inventory calendar and marketing plan. Individual tranches usually pay back over three to nine months.
The capital is unrestricted. It's not PO financing. It can go to inventory, marketing, or operating expenses.
We also designed the fee model to be simple. It's a flat fixed fee on deployed capital, with zero origination fees, zero processing fees, and no fees on the unused portion of the line. That last part matters more than people realize. Paying for unused capital is one of the quiet ways brands overpay.
On the repayment side, our model is revenue-based and we use monthly repayment caps. That cap matters because fast-growing brands shouldn't get punished for a big revenue month. Cash flow stability is the goal.
How to choose a non-dilutive provider without getting tricked by headline terms
CFOs and founders tell me the same thing: "I want the lowest cost of capital."
You should. But don't stop there.
The biggest mistake I see is judging offers purely on the headline rate. Two offers can look similar and behave completely differently once your seasonality hits or once you scale spend.
When you're evaluating a provider in 2026, ask questions that reveal alignment.
Start with the total cost of capital. Ask what the real cost is after every fee, not just the number on the front page. Hidden origination or admin fees can quietly change the math.
Then ask what they underwrite. If a provider only looks at Shopify when Shopify is 30% of your business, they're ignoring most of your performance. That usually means you'll get a smaller limit and a structure that doesn't match how you actually operate.
Next, get specific about remittance structure. Ask if there are minimum payments that still apply during slow months. Ask if there are maximum thresholds that pull too much cash during strong months. You don't want a structure where you pay a full month's remittance in the first week because revenue landed early.
If you have wholesale, ask how they treat it. Some lenders count revenue when an order is created. Others count it when cash lands. That difference matters when you're planning inventory payments.
Also ask where the capital goes. Some providers send funds to your bank account. Others pay suppliers or marketing platforms directly. That changes your flexibility and your control.
And finally, ask what support looks like after the funds hit. Will you be handed off to a different department? Will you have to re-explain the business every time you need help? In my experience, the best capital partners act like collaborators, not a help desk.
That's what I mean when I say "alignment - not just access."
Scenario planning: the only mindset that works when volatility hits
I talk a lot about "unapologetic optimism." People sometimes mistake that for positivity.
It's not.
Unapologetic optimism isn't about blind positivity - it's about discipline. It's planning. It's staying flexible. It's refusing to freeze when the environment changes.
One of the clearest examples I've seen was when a brand partner got hit with new import tariffs that increased landed costs overnight. Margins tightened quickly. The default reaction in that situation is to cut marketing and freeze inventory orders.
We didn't do that.
We ran scenarios. We modeled what happens if tariffs hold, if they drop, and if they expand. The goal wasn't predicting the future. The goal was creating options so the team could make a decision without panic.
That planning supported a flexible capital plan. It gave the brand confidence to keep ordering at scale and maintain supplier relationships while competitors hesitated.
When the market stabilized, they were one of the few brands still fully stocked. They captured meaningful market share while others scrambled to restock.
That is financial resilience in real life.
The working capital strategy most brands overlook: align marketing, inventory, and cash
Here's the counter-intuitive part.
Many cash crunches happen in businesses that are doing well.
The problem is misalignment. Marketing, inventory, and finance are often run like separate worlds. Marketing drives demand. Ops manages fulfillment. Finance watches cash. When those cycles fall out of sync, the business gets trapped.
When the timing works, cash recycles into growth. Inventory turns. Marketing converts. Payouts land. You reorder before you're out.
When timing breaks, the pain compounds. I've seen brands invest heavily in inventory ahead of demand and then underinvest in marketing. Products move slower than expected. Inventory sits. Storage costs climb. Then the brand runs deep discounts just to free up cash, and margins take the hit.
That's why I repeat this line so often: growth isn't just about how much you sell, it's about when you sell it.
Treat marketing like an investment engine, but know what you're buying
In CPG, marketing is usually one of the top three expense categories. Many brands invest 15% to 25% of annual revenue into marketing. If you don't have a clear view of CAC and payback, lenders will assume it's reckless. Sometimes founders assume that too.
You need to know your numbers. You need to know your customer journey. You need to know when a purchase becomes profitable.
Some brands are profitable on the first purchase. Others are betting on LTV through repeat orders or subscription. Both models can work. The key is clarity.
Once you're clear, you can set a marketing budget that matches the model. You can also explain it to lenders in a way they understand.
Know when to slow down on purpose
Scaling is not always "spend more, sell more."
At certain stages, the right move is to decrease marketing spend. You focus on upselling existing customers, increasing AOV, and tightening retention. That's still growth. It's just smarter growth.
And when inventory delays hit - strikes, production issues, freight delays - experienced brands lower spend and remove aggressive promos to slow sales velocity. They do it intentionally. They do it so they don't drive customers to an out-of-stock page.
Selling out creates a second wave of marketing spend just to re-engage people who were ready to buy. That's how CAC quietly inflates.
My bottom line on debt vs. equity for inventory in 2026
If you're funding inventory, you're funding the heartbeat of the business.
Equity has a place. It's powerful for building the future - R&D, new product launches, the experiments that create new upside. But using it to cover recurring inventory reorders can quietly destroy ownership over time.
Debt has a place too. It can fund inventory without dilution. But the structure matters more than the headline price. You want capital that respects your cash cycle, your seasonality, and your multichannel reality.
That's the whole reason I built Paperstack and why I talk about building a "Stripe-style OS for commerce capital." Modern brands don't need a one-time loan. They need a durable capital foundation that fits into their financial architecture and adapts as the business evolves.
Capital should start working with your business, not against it.
And yes - life can be a roller coaster. Hang tight and enjoy the ride. Just don't leave inventory funding to luck.
FAQs
Why are profitable asset-light brands still denied by Tier 1 banks?
It is often a structural mismatch, not a performance failure. Banks prioritize physical collateral (factories) over cash flow quality. In 2024, only 41% of small-business applicants received the full financing they requested, often because risk models view outsourced manufacturing and seasonal marketing spend as 'instability' rather than operational efficiency.
How much does an out-of-stock event actually cost a scaling brand?
The cost extends beyond a missed sale - it damages customer lifetime value. Research shows 69% of online shoppers will abandon a purchase if an item is out of stock. You effectively inflate your CAC by paying to acquire traffic that bounces, forcing you to pay again to win back broken trust.
Is a traditional bank line of credit superior to alternative financing?
Not necessarily for high-velocity brands. While the headline rate looks low, the process is rigid. In 2024, only 39% of financing applicants even applied to large banks, likely due to slow approval times and restrictive covenants that do not match the speed of modern commerce or variable production cycles.
Why shouldn't I use a Series A round to fund a large inventory deposit?
That is using permanent capital for a temporary need. Equity is for R&D and experiments. Inventory is a recurring expense. If you dilute ownership to fund a repeating cost, you are mathematically shrinking your exit value. You need a capital partner that underwrites your contribution margin, not your cap table.
Can I use inventory capital to fund customer acquisition spikes?
You should be able to, provided the lender understands unit economics. In 2024, 56% of firms sought funding for operating expenses like inventory and payroll combined. Modern 'Capital Wallets' allow you to deploy funds where ROAS is highest, perfectly aligning supply (stock) with demand (marketing).
