What is a Stocking Facility?
Stocking finance is a credit facility that allows businesses to buy inventory they can then sell on to customers. Unlike a standard loan or credit line, the lender pays for the inventory directly, and then the business repays the lender (with interest) when the stock is sold. Stocking facilities are often used to buy high-value inventory, such as vehicles and manufacturing equipment.
How Does a Stocking Facility Work?
Here’s a quick overview:
Term and Repayment:
Stocking facilities are short-term arrangements, typically lasting 120 days. Effectively, you’re borrowing money against inventory, and you’ll repay the purchases with interest as the items are sold. If the stock doesn’t sell by the end of the term, depending on your lender’s policies, you may need to buy the stock from the lender or it may be seized to pay off the remaining debt.
Interest Payments:
Interest varies from provider to provider. Some lenders will charge you interest on the entire value of the stocking facility you’ve agreed, even if you don’t end up using it all. Others will charge you only on the purchases you make. Many providers also add a “loading fee” for each new item purchased.
Lender Requirements:
As a minimum, you’ll need to provide financial statements and a credit history for your business when applying for a stocking facility. Some lenders may also require details of your own finances and a personal guarantee. You may need to own stock to a certain value already before you can be approved for stocking finance.
What kind of businesses can benefit from a stocking facility?
Stocking facilities are most often used by car dealers, to buy vehicles to display on their forecourts. But any business that sells or trades high-value inventory can benefit from stocking finance. The facility can be used to purchase finished items (such as new or used vehicles and equipment), inventory that’s still in the process of production (work-in-progress), and raw materials (such as steel for manufacturing cars).
Because inventory is purchased directly through the lender, a stocking facility frees up your business’s cash flow for other outgoings such as overheads and wages. This can allow you to purchase larger volumes of stock – taking advantage of bulk discounts – or offer a wider range of products to your customers.
Are there any risks to stocking finance?
There are many stocking finance providers, and their terms can vary widely. Some cover only part of the cost of the inventory, while others pay 100% and even cover associated costs such as delivery fees and auction fees. Some providers will require you to buy stock through a specific seller or auction house, so it’s important to carefully check the terms of any agreement.
If you’re buying a large amount of stock, or investing in more expensive inventory than you would without the credit facility, there’s also the risk that it may not sell in time. Market conditions, global events and other external factors can all end up affecting your sales. Depending on your provider’s conditions, you may end up buying unsold stock yourself, or your inventory or assets may be seized to offset the loss.
Stocking Facility to Support Your Inventory Needs
Fund your inventory and maintain healthy cash flow with flexible stock finance tailored to your trading cycle.