Inventory lenders begin from a question your balance sheet does not answer: if this loan defaulted, what would this stock actually fetch in an orderly sale? That figure — net orderly liquidation value, usually established by a third-party appraisal — is the real collateral, and the facility advances a percentage of it.
The arithmetic stacks two discounts. First, NOLV itself runs well below cost for most goods once liquidation pricing, selling costs, and time are factored in. Second, the advance rate applies to that NOLV, not to cost. A distributor holding $1M of inventory at cost might appraise at, say, 60–70 percent NOLV and advance at 80–85 percent of that — putting real availability around half of cost. Commodity goods with liquid resale markets land higher; branded, seasonal, or fashion-sensitive goods land lower; and some categories are excluded from eligibility entirely.
This is why standalone inventory facilities are less common than combined ones. Receivables advance at 80–90 percent of face; inventory advances at a fraction of cost. An asset-based facility that borrows against both — receivables as the engine, inventory as the supplement — usually produces more availability at better pricing than an inventory-only structure, for any company that sells on terms.