What is Stock Finance?
Stock finance is a working capital facility specifically designed to fund the purchase of inventory. Unlike a general business loan, it is structured around the purchasing cycle, funds are drawn when orders are placed and repaid as goods are sold. The facility revolves, meaning repaid funds are immediately available for the next order cycle. It is widely used in retail, wholesale, manufacturing, import/export, and any business with significant inventory requirements.
How Stock Finance Works
The lender advances funds (typically 70-90% of the stock purchase price) directly to the supplier or into your account ahead of payment. As stock is sold, evidenced by bank receipts, invoice payments, or EPOS data, the facility is repaid proportionally. The remaining 10-30% is typically your contribution, acting as first-loss protection for the lender. For import businesses, the facility can also cover shipping, insurance, and duty costs.
Types of Stock Finance
Revolving Stock Finance Facility
The most common structure. A pre-agreed limit you can draw against repeatedly as orders are placed. Ideal for businesses with regular, recurring stock purchases. Rates typically from 6-18% per annum on funds drawn.
Trade Finance (Single Transaction)
For a one-off or infrequent large purchase, trade finance funds a specific transaction, often tied to a purchase order from a confirmed customer. The finance is self-liquidating: the customer's payment repays the facility.
Import Finance
For businesses importing goods from overseas, import finance bridges the gap between paying the overseas supplier (typically upfront or on presentation of shipping documents) and receiving payment from UK customers. Covers goods in transit and customs clearance.
Who Stock Finance Is Suitable For
Stock finance works best for businesses with the following characteristics:
- A clear buying and selling cycle with identifiable stock
- B2B customers (for purchase order finance) or retail/wholesale sales
- A track record of trading in the relevant goods category
- Stock with resale value that can serve as security for the facility
Eligibility
- Minimum 6 months of trading in the relevant goods category
- A supplier relationship and standard purchase documentation
- Either confirmed customer purchase orders (for trade finance) or a trading history demonstrating stock turn
- UK-registered business or sole trader with UK bank account