There's a reflex among independent operators that borrowing is what you do when you can't afford something. It's a good instinct in personal finance and a costly one in inventory purchasing, because inventory financing isn't consumption debt. It's a decision about how many positions you can hold at once.
The comparison most buyers make
The usual mental calculation is: I have $200,000. A line would cost me 10.9%. Paying cash costs 0%. Therefore cash wins.
That's only correct if the $200,000 has no other use, which for anyone actively buying is essentially never true. The right comparison isn't financing cost against zero. It's financing cost against the return on whatever else that capital could be doing.
The comparison that's actually relevant
Take a buyer with $200,000 who sees three lots, each around $190,000, each returning roughly 18% on capital over about five months.
- Cash: take one lot. Return about $34,000. The other two go to someone else. Capital is fully committed for five months.
- Financed at 15% down: take all three. Roughly $85,000 committed across the three deposits, about $15,000 in total interest, gross return near $102,000, net around $87,000 — and $115,000 still available.
Same buyer, same market, same week. The financing cost 10.9% and bought a two-and-a-half-times better year.
Interest rate is a rounding error next to deal count. Buyers who understand this are in four positions while their cash-only competitors are in one.
When cash genuinely is better
This isn't universal advice, and the cases where cash wins are real:
- You have one deal and no pipeline. If there's genuinely nothing else to buy, idle capital has no opportunity cost and financing is pure expense.
- Sell-through is uncertain. Leverage amplifies a slow lot as efficiently as a fast one. Unproven category, unproven channel, new supplier — put your own money in first.
- The margin is thin. Below roughly 15% gross, financing cost consumes too much of what's left. Those deals need to be cash or they need to not happen.
- Your cash flow is already tight. A fixed monthly payment against variable sell-through is how a good buyer ends up in trouble. Fix the cash flow first.
Structure matters more than rate
Most buyers negotiate rate and accept whatever structure they're handed. It's backwards. Half a point on a nine-month line is a few hundred dollars. The wrong payment shape against your actual sell-through curve can cost you the deal.
If a lot converts in sixty days, a 180-day Flip line at a higher headline rate costs less in real dollars than a twelve-month amortizing line at a lower one — because you only pay for the days you hold. If a lot is seasonal, level monthly payments through your dead months will hurt you regardless of the rate on the front page.
Ask three questions of any structure before you look at the rate: when do payments start, what happens if I pay it off in half the term, and can I release inventory in tranches as I sell?
The practical rule
Finance when you have more good deals than capital. Pay cash when you have more capital than good deals. Almost everyone in this business is in the first situation and behaves as if they're in the second.
Illustrative figures. Not financial advice, not an offer of credit, and not a commitment to lend. All financing subject to underwriting approval. See disclosures.