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PurposeThe paper aims to explore the optimal strategies of inventory financing when the risk-averse retailer has different objectives, in the presence of multi-risk, i.e. demand risk, non-operational risk and retailer's strategic default risk.Design/methodology/approachThis paper develops an inventory financing model consisting of a bank and a risk-averse retailer with strategic default. This paper considers two scenarios, i.e. the capital-constrained retailer cares about its profit or firm value. In the first scenario, the bank acts as a Stackelberg leader determining its interest rate, and the retailer acts as a follower determining its pledged quantity. In the second one, the bank capital market is perfectly competitive. Lagrange multiplier method is adopted to solve the optimization.FindingsThe optimal strategies in inventory financing scheme in two scenarios are derived. Only when the initial stock is relatively high, the retailer pledges part of the initial stock. Retailer's risk aversion reduces its pledged quantity and performance. The strategic default reduces its profit. When it is relatively high, the bank refuses to offer the loan.Practical implicationsAnalytical inventory and financing strategies are specified to help retailers and banks to better understand the interaction of finance and operations management and to better respond to multi-risk.Originality/valueNew results and managerial insights are derived by incorporating partially endogenous strategic default and risk aversion into inventory financing, which enriches the interfaces of operations management and finance.