Finding additional working capital to hold stock for some businesses can be extremely difficult, but sometimes essential in order to meet contractual customer obligations. This can have a huge impact on cash flow and slow down further growth. Our lenders work closely with our clients in order to support their stock funding requirements and aim to make funds available within a matter of days.
Stock finance is where the purchase of goods is financed without there being an onward sale of those goods agreed at the time of financing. In other words there are no pre sales and the lender is taking a commercial view that you are able to sell the stock, either whilst in transit to you or when it has arrived.
The mechanics of the facility are identical to Trade Finance with the exception that the goods purchased are generally not tracked through to a sale. Repayment can be via the sale of any stock already owned by the company.
Lenders criteria differ but in the main the following are required;
As a general rule, companies seeking stock finance should be in a stable and profitable position. There is more reliance on the overall company position than under the Trade Finance facility that will be repaid through a confirmed order.
Typical security over the business consists of a debenture behind the Bank (if appropriate) and Personal Guarantees. The lender will also have rights over the goods they have financed. Depending upon the size of the facility the lender may seek to support personal guarantees via legal charges over a business /personal property.
The real difference is that Trade Finance has been designed to support businesses that have either pre-sold the items and will make immediate delivery or at least will do within a very short period of time. Stock finance however, will look to support businesses that may either have a requirement to hold a certain level of stock to keep their customer base happy with regards to delivery times or simply need the raw materials in order for them to produce the end product quicker.
From the above information, you should be able to establish what the best product is for your business but we would always encourage you to discuss all options with your accountant to ensure you make the most of your working capital.