Stock Finance After Bank Decline
Declined by Barclays for stock finance, a wholesale distributor turned to Doulton Bridging Finance and accessed a £500,000 revolving stock facility within 10 working days.
“Barclays said no in week one. Doulton had a better facility live in week three. The contract we needed the stock for went on to be worth £1.8m. That decline was the best thing that could have happened to us.”
The Scenario
A Kent-based wholesale distributor of personal care and beauty products had supplied independent pharmacies and health retailers for nine years, with annual turnover of £2.8m. The business had been approached by a national pharmacy buying group to become their preferred supplier for a branded product range, a contract that would require initial stock purchases of £650,000 per annum, delivered in four quarterly tranches, ahead of quarterly payment from the buying group.
The Challenge
The first quarterly stock tranche required was £170,000, with payment from the buying group due 45 days after delivery, a 45-day financing gap on each tranche. Delivering the full contract across four quarters would require sustained access to approximately £500,000 of stock finance. The business approached Barclays, their principal bank for nine years. Three weeks into the review process, Barclays declined, citing 'insufficient asset security for a facility of this size in the current lending environment.' No specific credit concern was raised, the business had a clean credit profile and nine years of profitable trading, but the bank's appetite for unsecured stock finance facilities of this magnitude was apparently limited. With the contract start date four weeks away, the business contacted Doulton Bridging Finance on the day of the decline letter.
The Solution
Stock finance against confirmed purchase orders from creditworthy end-buyers is a well-understood product in the specialist lending market. The buying group, a national pharmacy chain with a well-known brand, was financially strong and the purchase order terms were clear, making this a trade finance case rather than a creditworthiness case. We identified two specialist trade and stock finance lenders and presented the transaction with the buying group's purchase order, the supplier terms, and 12 months of the business's trading history. Both lenders understood the structure immediately, and the preferred lender offered a £500,000 revolving facility at 75% of purchase value, at 9.8% on the drawn balance. The facility was live within ten working days, the first tranche of stock (£170,000 of product) was funded within the week, and the business met the contract start date.
The Deal Structure
| Facility Type | Revolving Stock Finance Facility |
|---|---|
| Facility Limit | £500,000 |
| Advance Rate | 75% of verified stock purchase cost |
| Rate | 9.8% per annum on drawn balance |
| Repayment Trigger | Buyer payment receipt (buying group - 45-day terms) |
| Term | 12 months, annually renewable |
| Security | Stock pledge + director personal guarantee |
| Decision to Funds | 10 working days |
The Outcome
The buying group contract was fulfilled in full across all four quarterly tranches. The business generated £1.8m of revenue from the contract in the first 12 months, a 64% increase in turnover, and the stock finance facility was renewed at the 12-month point at an improved rate of 9.1%, reflecting the clean repayment history. The buying group subsequently increased the contract scope, and the facility limit was expanded to £750,000 at renewal to accommodate the additional volume. The business has since moved its banking relationship away from Barclays, who declined to match the specialist lender's terms on renewal, to a challenger bank that provides a package of working capital products through the Doulton Bridging Finance panel.