Inventory Finance

If you are a retailer looking to buy inventory in bulk (and take advantage of cost savings) or you are a manufacturer looking to purchase materials and goods, then inventory finance could be for you.

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Written by Simon Moorcroft | April 15, 2024

What is inventory finance?

Inventory finance, also known as warehouse finance or stock finance, is an asset-based finance specifically designed for retailers, wholesalers and manufacturers. Businesses can apply for inventory finance to bulk-buy stock to cover upcoming busy periods, pay warehouse storage fees, or simply free up cash in their inventory.

Inventory finance keeps your business flexible to consumer demands, allowing you to stock up on trending products or invest in new product lines to grow your business quickly.

How does inventory finance work?

Inventory financing is a type of short-term finance that is usually repaid between 12 months and a few years. The lender assesses the value of the inventory you’re offering up as security and lends you a percentage of the full value. Then, if you fail to repay the loan, the lender seizes the inventory and sells it themselves to recoup their investment.

You will usually repay the financing in fixed monthly instalments, with interest, over the pre-agreed repayment period.

Am I eligible for inventory finance?

Different lenders have different eligibility requirements for inventory finance, but usually, if you meet the below criteria, you could consider applying:

  • Your business is UK-registered
  • Your business has been trading for at least six months
  • Must have inventory to secure the finance

As you need proof of trading history for inventory finance, it’s not always possible for new businesses to apply for this type of financing. But don’t worry if you don’t qualify for inventory finance, we have plenty of other loan types suitable for all business types.

Some lenders will require a minimum credit score or turnover, so always check specific eligibility requirements with your chosen lender.
Inventroy finance can help small business buy stock

Advantages of inventory finance

  • Frees up cash tied up in inventory. Your inventory is a valuable asset to your business, so instead of it sitting around waiting to be sold, you can use it as collateral to release equity and reinvest in your business.
  • Take advantage of bulk buy discounts. Many suppliers offer discounts the more you purchase, so you can save some money and buy in bulk.
  • Have enough stock for busy periods. Let’s say Christmas is approaching, and you know which products are going to be best sellers. You can purchase inventory in bulk and keep customers happy, ensuring a consistent stock supply.

Disadvantages of inventory finance

  • Your outgoings increase. When you take on any business debt, you’re cutting your profit margin further, and you have another outgoing to remember to pay on time.
  • There’s a chance you'll buy too much stock. If you overbuy and you can’t shift the stock, your profits will take a hit. It can be tempting to stock up on many different items when you access the funds, but always be careful to manage the risk of oversupply.
  • Lenders usually give you only a percentage of the asset value. This means you might not be able to cover the full cost of the inventory you want to purchase, which means you will have to dip into your company's cash reserves.
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Alternatives to inventory finance

If financing stock isn’t the most suitable business financing option for you, there are plenty of alternative financing options available through our lenders:

Working capital loan. A working capital loan can give you the funds you need to reinvest in your business without risking an asset.

Business credit card. With a business credit card, you can take advantage of interest-free purchasing periods, cashback and other business rewards while accessing funds as and when needed. Only pay interest on the funds you use and repay the credit used monthly to keep interest fees to a minimum.

Invoice financing. Use invoice finance to sell one or multiple invoices to the lender in exchange for up to 95% of the unpaid invoice value upfront. This gives you an immediate cash flow, almost like an advance on your invoice payment.

Merchant cash advance. If you’re a retailer accepting credit and debit card payments from customers, you might be eligible for a merchant cash advance against your future sales.

Retail business loan. As a retailer, remaining competitive is vital to business success, a small business loan designed for retailers can help you pay staff wages, buy fixtures and fittings and more.

How Capalona can help

Our free loan comparison platform is a quick and easy way to find suitable and competitive ecommerce inventory finance lenders. The self-serve platform is simple to use; just select the reason for the loan, how much you want to borrow and a few more details, and we'll match you instantly with relevant lenders.

Expand loan details to learn more, and click through to continue your application with the lender.

Getting a quote is 100% free, and you are not obligated to proceed with any loan offer. Get a free quote today.

About the author

Simon Moorcroft
Written by Simon Moorcroft

Money Writer, Director and Co-Founder

Simon has over twelve years of experience in consumer and business finance. Simon is a Co-Founder and Director at Capalona and heads up the technology team, who utilises the latest technology to assist our customers in finding fast finance.

Updated: April 15, 2024
Published: April 15, 2024
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