What is stock finance and how does it work?

Stock finance is a means of releasing working capital from stock where the finance company purchases the stock from the supplier on behalf of the business offering a 90 day revolving facility paying the supplier on the due date and the business then has 90 days in which to repay the finance company.

Stock finance has historically been one of the hardest financial facilities to obtain as the banks and finance companies have been reticent to lend against stock for small and medium sized companies due to the perceived lack of security.

Some trade finance companies have been willing to fund the purchase of finished goods as long as they have been purchased against a firm order from a customer but seldom for stock and in many of these cases the purchase finance facility has been offered in conjunction with factoring or invoice discounting as the finance company funds the whole transaction from the purchase of the goods to the sale to the end customer.

Stock finance facility now available

Whilst the above is a popular method of financing the purchase of finished goods it isn’t suitable for everyone and now one of the more adventurous finance companies has come up with a stock finance facility that is geared to the purchase of finished goods that haven’t been pre-sold but are purchased for stock.

This facility is aimed at established companies and not start ups as the facility will only be made available to companies that are credit insurable and the amount of the facility offered will be geared to the credit limit that the finance company can obtain.

How the stock finance facility works

The way that facility works is that the finance company will offer a 90 day revolving facility. They will pay the supplier on the due date and the company has an additional 90 days in which to repay the finance company.

Unlike traditional trade finance facilities which are mainly aimed at distributors this particular stock facility is also available for retailers and indeed any other type of company who holds stock subject to their credit insurability.

As an example one of the most recent companies taking advantage of this form of finance was a West Midlands manufacturing company who have recently arranged a £450,000 revolving stock finance facility on a stand alone basis.

A second and completely different type of case history was a leasing business who were purchasing cars at the end of their lease contracts to sell in the retail motor trade. Vehicle sales accounted for only 10% of their turnover, however with their sights set on increasing the vehicle sales part of the business substantially they required financial help to purchase more cars on a regular basis. and were offered a stand-alone Purchase Funding facility whereby cars were purchased on their behalf with them repaying the finance company once the cars were sold.

Finally, a wholesaler and online retailer of women’s fashions turning over £8.5m was recently offered and accepted a £500,000 stand alone revolving stock facility which will be utilized to increase their online presence.

As a broker specializing in working capital finance including the financing of stock our services are completely free of charge so please contact us without obligation on 01827 707680 to see if we can help.