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Business loan for stock
Stock-based businesses have a working capital requirement that’s often supported through debt finance. The need to purchase stock before payment is made requires a complicated balance and, when that balance shifts out of favour, the business can struggle.
Can a business loan provide the answer?
Traditional business loans, both secured and unsecured, are designed to be flexible and can be used for many purposes, including stock purchase. However, structuring finance to meet specific needs and exact circumstances often provides more suitable solutions, with lower costs, larger facilities, and a more suitable repayment framework.
At Clifton Private Finance, we can help you obtain tailored finance that fits your stock funding requirements.
Using Business Loans to Purchase and Leverage Stock
Traditional loans provide businesses with lump sums of capital that can be applied to a multitude of uses. Unsecured business loans offer a quick and easy application but are limited in funding scope and are more costly than secured alternatives, while secured loans provide lower rates and greater sums, yet lack definition for optimal application.
When looking to purchase stock, established businesses may prefer to explore the full range of options, each used for a specific stage in the stock lifecycle.
Buying New Stock
Businesses looking to purchase new stock with no existing inventory will typically employ one of three loan products:
- Unsecured loans - Startups and younger companies may look to unsecured loans to buy initial stock. Leaning on your business and personal credit histories, unsecured loans tend to have higher interest rates and lower maximum ceilings than other loans, but are often available where other options are more limited. Typical unsecured loan sizes range from £10,000 to £50,000, though established businesses may access larger sums.
- Property-secured loans - Second-charge mortgages offer businesses the option to leverage property equity to secure lower rates and greater sums than unsecured options. Businesses with low existing stock levels may use warehouses or other company-owned premises as security.
- Purchase order finance - PO finance offers a superior option for importers and distributors with low current stock but contracts for future orders. Lenders will provide funding based on verified POs to obtain the stock required to fulfil the order. PO finance is an excellent option for stock-based businesses with no property equity, offering competitive interest rates, repayment flexibility often based on order timelines, and considerable loan-to-value (LTV) based on the quality of the PO and its issuing company.
Leveraging Existing Stock to Continue Stock Flow
Once stock flow is established, options to secure cost-effective funding increase. In addition to the options available for buying new stock, businesses may utilise existing stock as collateral through dedicated stock finance.
Stock finance (also called inventory finance) is specialist funding that provides a revolving credit facility that scales with your stock level. The lender provides a credit limit based on the held inventory, with regular audits that allow the facility to increase or decrease the size accordingly.
Businesses that form part of a consistent supply chain may use a stock finance revolving credit facility to provide essential funds as and when needed. Interest is only paid on the balance of the facility, reducing unnecessary costs that would occur with a lump-sum loan.
Our knowledge base provides guides to learn more about revolving credit facilities.
Specialist stock finance facilities can also be created in conjunction with purchase order finance, providing an ongoing credit-based facility that merges both the initial stage of stock acquisition and the ongoing flow of goods.
Speak with your Clifton Private Finance adviser to explore advanced stock finance structures.
Showcasing Premium Stock
Retail businesses presenting high-value items to customers in showrooms may require considerable levels of stock for display purposes.
Unlike stock for immediate sale, these items may remain on show for a number of months, losing resale value and needing to be sold at a discount. Showroom exhibits can tie up large amounts of capital while producing no immediate revenue.
Examples of businesses that depend on display products include:
- Kitchen showrooms
- Furniture stores
- Car dealerships
- Electronics shops
Funding these assets efficiently requires a specific finance product, known as showroom finance. Showroom finance uses the display stock as security, with monthly payments that are structured in a similar way to the hire purchase or leasing options of asset finance.
Showroom finance gives showroom-style businesses the funding support needed to present for-sale products to customers without putting unwanted pressure on working capital.
Ex-display stock can then be sold at a later date for a discount, with the proceeds used to repay the outstanding balance.
Seizing Opportunities
Stock-based businesses benefit from significant capital reserves. Time-sensitive deals are often available, and taking advantage of these unforeseen moments can provide an essential boost. Examples include:
- Suppliers offering discounts to move large volumes of stock to make way for newer products.
- Competitors entering liquidation, with existing stock sold at a low cost for expediency.
- Geopolitical instabilities threatening current stock levels and pricing, requiring a rapid response.
When a short window opens to seize an opportunity, businesses that have access to large sums of liquid capital have an advantage over those that are stretched. Not all businesses can afford to hold back large quantities of cash, however, here, specialist bridging finance can help.
Bridging finance can be put into place extremely quickly, giving you the funds you need to take advantage of unexpected situations. While it is typically leveraged against property equity, specialist inventory-based funding is possible in certain circumstances, providing similar buying power for stock-heavy companies.
Designed specifically for short-term use, bridging finance is more expensive than other forms of finance and is intended to be replaced by lower-cost, longer-term funding as part of an exit strategy.
When a time-sensitive opportunity arises, it’s important to move fast. Speak to a Clifton Private Finance adviser about bridging finance to explore your options and move forward without delay.
An Illustrative Example of Specialist Stock Financing
Simone owns a young furniture resale business, SimoneFurniture Ltd., based in a warehouse at the edge of the city. She started the business and bought the premises using an inheritance, leasing her building to SimoneFurniture Ltd. For the first nine months, Simone uses her personal investment in the company to build the business, with no debt financing .
However, Simone does not have the £70,000 she needs to purchase the stock. She considers a secured loan against her property, but with advice, chooses an alternative structure:
- An unsecured startup loan at a low rate, for £15,000
- Purchase order finance for £50,000 secured against the £100,000 purchase order (50% LTV)
- £5,000 personal investment
With help from Clifton Private Finance, Simone obtains the necessary funds, purchases the stock from her suppliers and sells it on.
A few weeks later, after some interesting enquiries, Simone decides to utilise the shop-front section of her building that she had previously ignored to service direct customers.
She decides to acquire some of the finest pieces to best present the company. This represents another £30,000 investment. Working once more with Clifton Private Finance, Simone obtains showroom finance for the display stock. This entices visitors to her shop and builds her business even more.
The next month, Simone learns that a similar stockist from a few hundred miles away is being forced into liquidation. Simone has the opportunity to purchase a significant amount of stock at under half price if she can raise £80,000 within a few days. Once more, she turns to Clifton Private Finance and speaks to a bridging finance adviser.
Keen to refinance the £80,000 and remove the charge from her warehouse, Simone and her Clifton Private Finance adviser explore stock finance options. With her valuable inventory, a revolving credit facility can be raised for £50,000. Combined with a further order from her large city centre client, Simone repays the bridging finance, including its costs, and increases her business volume.
By the end of the year, Simone has settled into a comfortable position. The warehouse no longer has a charge upon it, she has a £50,000 credit level on her stock finance facility, a recurring high-volume client, and increased showroom business.
Business Loans for Stock FAQ
Q: Can I Get a Business Loan Specifically to Purchase Stock?
A: Yes. Depending on the level of stock you need and your business structure and circumstances, there are a range of options available to you, from unsecured loans to dedicated stock finance revolving credit facilities.
Q: How Much Can I Borrow to Buy Stock?
A: Different loan structures will offer different sums for stock purchase. Unsecured loans may range from £10,000 to £50,000, while dedicated stock finance solutions are calculated as a loan-to-value (LTV) ratio of available collateral and are available from £25,000 to £500,000+
Q: What’s the Difference Between Stock Finance and PO Finance?
A: Stock finance is a form of funding that is secured with existing stock as collateral and is typically set up as a revolving credit facility that scales in line with your business. Purchase order finance is funding secured against validated purchase orders from customers and can be used to buy stock to meet that order.
Q: Can a Startup Get a Business Loan for Stock?
A: Yes. Startups can use unsecured finance to purchase initial stock. Larger- scale finance, such as Purchase order finance or stock finance, may be available, based on the varying circumstances of the business.
Q: What’s the Difference Between Stock Finance and Inventory Finance?
A: Nothing. Stock finance and inventory finance are two different terms for the same debt-finance product. Stock finance is the preferred term in the UK, while the US refers to the funding as inventory finance.
Q: Can I Use Stock as Collateral for a Loan?
A: Yes. Stock for sale can be used to secure stock finance facilities, while display stock can be used to obtain asset-based showroom finance.
Q: How Long Does it Take to Get Stock Finance?
A: Unsecured loans and bridging finance can be facilitated very quickly - often within a few days - while underwriting for stock finance can be lengthy in some circumstances. Clifton Private Finance will work with you and the lenders to smooth the application and obtain funding as efficiently as possible.
Q: What Do Lenders Need to Approve Stock Loans?
A: Depending on the type of stock loan, lenders will assess your business turnover and credit history, cash flow, and existing debt obligations, and the value and quality of your collateral.
Specialist facilities may require stock turnover assessment, supplier relationship and credit evaluations, and presentation of valid purchase orders.
Q: What Happens if Stock Purchased with Finance Doesn’t Sell?
A: If stock doesn’t sell as quickly as expected, the business is nonetheless responsible for meeting its loan obligations. This may mean using cash flow typically earmarked for other purposes or looking to refinance options should the problem persist.
Stock that is used as collateral can be repossessed and sold by the lender should the loan or facility become defaulted. Businesses experiencing difficulties should discuss options with a Clifton Private Finance adviser as soon as possible.
Find the Best Business Loan for Stock with Clifton Private Finance
Clifton Private Finance is a whole-of-market business finance broker. We work on your behalf to secure the most suitable finance for your needs, comparing deals to obtain cost-effective rates and flexible terms. Partnering with Clifton Private Finance for your stock finance offers:
- Tailored advice from a dedicated business finance specialist
- A comprehensive appraisal of your funding requirements and options
- Access to the wide UK market of banks and specialist stock finance lenders
- Comparison between business loan options, including secured loans and revolving credit facilities
- Pre-approval and application support
- Ongoing expertise and advice throughout the loan lifetime
To discuss your needs and explore the range of business loans for stock purchases, book a consultation with Clifton Private Finance today.
