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• 17 May

  Stock Finance Loans Funding For Unsold Unfinished Goods

  Stock finance is a valuable funding solution for businesses needing to unlock cash tied up in unsold or unfinished goods. Whether you’re managing surplus stock or uncompleted inventory, stock finance loans can provide the working capital you need.

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  What Is Stock Finance?

  Stock Finance Definition

  Stock finance is a financial solution that enables businesses to unlock capital tied up in the amount of stock they are holding. This can include raw materials, unfinished goods, and unsold products.

  The term can also be used to describe a range of facilities that are not linked to stock values held but are used to purchase additional stock or raw materials.

  Who Provides Stock Finance Loans?

  Inventory or Stock finance loans can be a difficult type of facility to find. There are some large ABL (Asset Based Lending) lenders that offer it, but typically it is for very substantial amounts and often only as part of an overall package of funding against a variety of assets.

  Standalone Funding Or An Addition To Top-Up Receivables Financing

  This difficulty is not the case with all providers. We have found an option for a standalone stock-backed loan from a UK-based finance house that is taking a very innovative view. This option can operate independently from an existing receivables financing facility, allowing you to top-up your funding by adding funding against your stockholdings.

  How Inventory Finance Helps Businesses Maintain Cash Flow

  Managing cash flow is one of the biggest challenges for businesses that hold large amounts of stock. Whether you’re a manufacturer waiting for goods to be completed then sold before you get paid or a vendor sitting on unsold products, inventory finance can provide a much-needed boost to working capital.

  Without access to the right funding, businesses often find themselves in a cycle where capital is tied up in stock, leaving them unable to purchase new materials, pay suppliers, or cover operational expenses. This is particularly common in industries with long production lead times or seasonal demand fluctuations.

  Stock-backed lending solutions help bridge this gap, ensuring businesses don’t have to miss out on growth opportunities due to short-term cash constraints.

  Which Businesses Can Benefit From Stock-Backed Loans?

  This financial solution is beneficial for businesses with significant stockholdings. Businesses that tend to hold stocks or an inventory of raw materials include:

  • Manufacturers
  • Wholesalers
  • Retailers

  Industries That Commonly Use Inventory-Based Lending

  While almost any company holding stock can benefit from funding secured against inventory, certain industries rely on it more than others. Some of the most common sectors include:

  • Manufacturing – Businesses that produce goods often have raw materials and work-in-progress stock that isn’t immediately generating income.
  • Wholesale & Distribution – Holding large amounts of stock is necessary for bulk sales, but it ties up significant capital.
  • Retail & E-commerce – Seasonal demand changes mean some inventory may move slowly, making stock-backed loans helpful to create a positive cash position.
  • Construction & Building Supplies – Materials and equipment must be purchased in advance, often before payments from customers arrive.

  By using inventory-based funding, these businesses can access working capital without waiting for sales to clear.

  Benefits of Stock Finance

  Some of the benefits of stock-based funding include:

  • Improved Cash Flow: The facility unlocks funds tied up in stock to cover operational costs, supplier payments, or unexpected expenses.
  • Increased Purchasing Power: The extra capital can be used to negotiate bulk discounts or favourable terms with suppliers.
  • Flexible Financing: Funding to suit business needs, whether it's for seasonal stockpiling or managing fluctuating demand.
  • Supports Growth: Enables businesses to scale operations by maintaining optimal stock levels without cash flow interruptions.
  • Non-Dilutive Funding: Unlike equity financing, stock finance does not require giving up ownership of the business.
  • Top-Up Financing: In many cases, this type of finance can be offered in addition to invoice financing (even with another existing provider) or other types of funding. If you already have invoice finance in place you may be able to get further funding on top of what you already have without needing to move invoice finance companies.

  Understanding the Risks of Stock-Backed Lending

  While securing finance against stock can be an effective funding strategy, businesses should consider the potential risks:

  • Fluctuations in Inventory Value – The worth of stock or raw materials may change over time, particularly for seasonal items, or products subject to depreciation.
  • Storage & Insurance Costs – Some lenders may require inventory to be properly stored and insured, adding extra expenses.
  • Repayment Commitments – Unlike invoice finance, where funds are repaid when invoices clear, stock-backed lending requires structured repayments, which businesses must plan for.
  • Lender Terms & Restrictions – Some providers may have restrictions on inventory loan eligibility, requiring high-value, liquid, or rapidly sellable stock.

  Before taking out any working capital facility secured against inventory, it’s important to assess these factors and ensure it aligns with your cash flow plans.

  Stock Finance Against Unfinished Goods That Are Unsold

  Now there is an option for normal SMEs that are seeking stock finance. One of our panel of funders provides a stock-based funding facility that can stand alone, or be used in addition to most existing invoice finance facilities. This can substantially increase your purchasing power and the amount of credit that you have available to your business.

  There are no early repayment charges and you will not have to change the way that you handle your stock.

  How The Facility Works

  This facility can be used to finance either imports from abroad or supplies from UK suppliers. This can be useful in situations where companies have sought to resupply from UK-based providers, in order to overcome global supply chain problems.

  The facility can operate as a revolving loan that is drawn down and repaid multiple times.

  Unfinished Goods That Are NOT Presold

  Furthermore, the facility can be used to finance:

  • Stock purchased to increase inventory, i.e., that has NOT been presold.
  • Component parts or raw materials that are NOT finished goods.
  • Payments to UK-based suppliers or suppliers overseas.
  • Payments to suppliers in currency or GBP (Sterling).

  In many cases, other funders will require goods to be finished and presold, i.e., the buyer has existing orders for the goods. that are already in a finished state. This is NOT the case for one particular funder. This is what makes them stand out from other inventory finance companies.

  Stock Financing Application Process

  The stock financing application process is as follows:

  • Assessment: The finance company evaluates the value of the stock, business financials, and operational needs.
  • Approval: Based on the assessment, the financier determines the funding amount and terms.
  • Funding: Once approved, the agreed funds are disbursed to the business or directly to suppliers.
  • Repayment: Typically, repayment is structured to align with the sale of the financed stock, ensuring manageable cash flow for the borrower.

  Additional Trade Finance To Fund Imports Or Purchases

  For more information about financing finished goods against presold orders please see our guide to trade finance. This can be used for purchases from UK suppliers or those based abroad.

  An Example Of A Transaction That Can Be Funded

  As an example, if products such as food ingredients are being purchased from one supplier, and packing materials such as jars are purchased from another, both could be paid for. The buyer will then enjoy a period of credit before they have to repay the stock financing. Goods can either be bought to fulfil existing orders or for increased inventory.

  A Stock Finance Case Study

  We were able to find a stock finance facility for an importer of electrical products from overseas. In this case study, the electrical products were being used in the supply of EV chargers for electric cars. As the products were being purchased into stock rather than against orders this type of inventory finance was a perfect solution to allow our client to accumulate the stock they needed.

  Read the British Business Bank's article about Asset Based Lending Including Stock.

  Alternative Funding Options for Businesses with Stockholdings to Sell

  If stock finance isn’t the right fit, there are other ways to leverage their stockholdings for funding:

  • Trade Credit – Negotiating extended payment terms with suppliers can free up cash without taking on debt.
  • Asset-Based Lending (ABL) – Combining stock-backed finance with invoice factoring, equipment finance, or property-backed lending can provide broader access to capital.
  • Inventory Clearance Sales – Discounting slow-moving stock can generate immediate cash flow, reducing reliance on borrowing.
  • Supplier Financing – Some suppliers offer finance options that allow businesses to acquire stock with deferred payment plans.

  Understanding all available options ensures businesses make informed financial decisions that align with their growth plans.

  Typical Facility Terms & Eligibility Criteria

  The facility can release between £25K and £300K to a UK company. The funds can be paid away to suppliers for purchases that do NOT have to be finished goods.

  The business needs to hold stock or raw materials to qualify for funding, these should be non-perishable items. This asset underpins and provides security for the finance.

  Typically, a personal guarantee from at least one homeowning director will be required, although a third-party guarantee may be accepted in some cases.

  Pricing And Fees For Stock-Backed Lending

  Fees and pricing will be agreed upon on a case-by-case basis, but typically include interest on the amount outstanding for an initial 30-day period, with additional days charged on a pro-rata basis. There will typically be a fee to set up the facility and a transaction charge each time funds are paid away to a supplier under the stock finance facility.

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  Frequently Asked Questions About Stock Finance

  1) What is stock finance?
  
  Stock finance is a form of funding that allows businesses to unlock capital tied up in unsold or unfinished goods. It provides companies with working capital to manage cash flow, purchase additional stock, or meet operational expenses without waiting for inventory to be sold.

  2) How does stock finance work?
  
  A lender assesses the value of your stock and provides funding based on a percentage of that value. The stock serves as security, and as you sell inventory, the loan is repaid either gradually or in a lump sum, depending on the agreement.

  3) What types of businesses can benefit from stock finance?
  
  Stock finance is ideal for businesses that hold significant levels of inventory, such as:

  • Retailers
  • Wholesalers
  • Manufacturers
  • Importers and exporters
  • Distributors

  4) What types of stock can be financed?

  Most lenders can finance a range of stock, including:

  • Finished goods ready for sale
  • Raw materials used in production
  • Unfinished products at various stages of manufacturing

  However, perishable or highly seasonal goods may have stricter lending criteria or be ineligible.

  5) How is stock valued for finance purposes?

  Lenders typically assess stock value based on factors like:

  • Market demand and resale value
  • Stock turnover rates
  • Condition and storage of inventory
  • They may conduct independent audits or require stock reports before approving funding.

  6) What’s the difference between stock finance and inventory finance?
  
  While often used interchangeably, stock finance usually refers to funding tied to existing stock, whereas inventory finance can also include funds for purchasing new stock before it is acquired.

  7) How do I apply for stock finance?

  To apply for tailored stock finance solutions, our team can help connect you with the right lender, get in touch today on 03330 113622.

  By Glenn Blackman