Inventory and stock finance: unlocking the cash sitting on your shelves

Stock is cash in a different shape. Every carton in the warehouse and every unit on the shelf was paid for with money that isn’t in your account any more. Inventory finance lets you borrow against that stock, so you can buy more ahead of a busy season, take advantage of a bulk discount or simply stop your working capital being frozen in boxes.

It sounds straightforward, but stock is one of the harder assets to lend against. It moves, it ages, it can be hard to value and suppliers may already have a claim on it. Here’s how lenders actually approach it, and when a different loan will do the job with less fuss.

How does inventory finance work?

There are three main shapes:

• Stock-secured revolving facility. The lender sets a borrowing base from the value of your eligible stock, and you draw and repay as you buy and sell. Regular stock reports keep the limit up to date.
• Floor plan finance. Used by dealers in vehicles, caravans, boats and machinery. Each unit is funded individually and repaid when that unit sells.
• Stock purchase loan. A one-off loan to buy a specific parcel of stock, such as a seasonal range or a discounted bulk buy, repaid as it sells.

In every case the lender advances a portion of the stock’s value, not the full amount. The gap protects the lender if it ever has to sell the stock quickly, which almost always means selling below your normal price.

What kind of stock do lenders like?

Stock type	Lender appetite	Why
Fast-moving branded consumer goods	Higher	Easy to value and resell
Building materials and hardware	Moderate to high	Steady demand, many potential buyers
Vehicles and machinery (dealers)	High, usually via floor plan	Individually identifiable and valued
Fashion and seasonal items	Moderate	Value falls quickly after the season
Perishables and food	Lower	Short shelf life
Custom or made-to-order parts	Low	Few buyers outside your business
Work in progress	Very low	Not saleable as it stands

If your stock sits mostly in the bottom half of that table, a stock facility may offer less than you’d expect, and a loan sized on turnover, or one secured by property, often goes further.

What do lenders look at?

• Stock turnover. How quickly stock sells. Slow-moving or ageing lines are often excluded or heavily discounted.
• Stock records. Reliable inventory software, regular counts and reports that reconcile with your accounts.
• Storage and insurance. Where the stock is kept, who controls it and whether it’s insured.
• Sales history. Your BAS, financial statements and bank statements show whether the stock really turns into cash.
• Supplier claims. Whether suppliers sell to you on retention-of-title terms and have registered that interest.

That last point catches many owners out. The PPSR’s guidance for retailers explains that a wholesaler’s registered interest protects its claim over goods or sale proceeds if you don’t pay within the credit period. It also notes that a properly registered purchase money security interest can rank ahead of earlier registrations, as long as it’s registered before the goods are delivered. In plain terms, stock you haven’t paid for yet may effectively belong to your supplier’s security first, so lenders often fund only stock that’s been paid for in full.

If your stock is clean, turning over and well recorded, see whether it could support a facility.

Do stocktakes and ATO rules matter to a lender?

They matter in different ways. For tax, the ATO’s simplified trading stock rules let eligible businesses with aggregated turnover under $10 million skip a formal stocktake if they reasonably estimate their stock value changed by $5,000 or less over the year. Businesses with turnover from $10 million to under $50 million can also use these rules for income years starting on or after 1 July 2021. The ATO lists cost price, market selling value and replacement value as ways of valuing stock.

A lender, though, isn’t relying on your tax return. It needs to know what’s on the shelf right now and what it’s worth. Even if you don’t need a stocktake for the ATO, expect a lender to ask for regular stock reports and possibly to inspect or audit your stock. Businesses with clean, up-to-date inventory systems get better outcomes, and a full count before you apply is rarely wasted effort, particularly around EOFY.

What does inventory finance cost?

Pricing depends on the type of stock, the size of the facility, how much monitoring the lender has to do and the security offered. The cost usually includes:

• Interest or a funding charge on the amount drawn.
• Establishment fees covering valuation, PPSR registration and legal documents.
• Monitoring or audit fees for stock checks and reporting reviews.
• Line fees on some revolving facilities, payable on the limit whether you use it or not.

Because stock needs more monitoring than other security, dedicated stock facilities can carry more fees than a simpler loan. Compare the all-in cost against an unsecured loan or a property-secured loan before you choose.

Illustrative example: a hardware and garden retailer

Illustrative example: a regional hardware and garden store wants to stock up before spring. Its supplier offers a better price on a $120k bulk order of outdoor furniture, irrigation gear and garden supplies if it’s paid within 14 days. The store carries around $400k in stock but most of its cash is tied up in it.

A lender reviews the store’s inventory reports, sales history and supplier terms. Seasonal lines are valued conservatively, and stock still under supplier retention of title is excluded. The store qualifies for a stock purchase loan covering most of the bulk order, repaid as spring sales come in. The bulk discount helps offset the finance cost.

When is another loan a better fit?

• A one-off seasonal top-up. Seasonal business loans or an unsecured loan sized on turnover, typically $5k to $500k, avoid ongoing stock reporting.
• Recurring small gaps. A business line of credit is flexible and doesn’t depend on stock counts.
• Stock still on the water. Use import finance to fund it until it lands.
• A big confirmed order. Purchase order finance funds the goods for that specific customer.
• Owners with property. A property-secured business loan from $20k to $5m often lends more against less paperwork than stock alone.

Retailers can see how lenders read their figures on the retail shop loan page, and the industry finder covers other stock-heavy trades.

Is your stock tying up cash you need?

Full shelves are good for sales, but they shouldn’t leave you short for wages, rent or the next order. Tell us what kind of stock you carry, roughly what it’s worth and what you need the money for. Enquiring takes around 60 seconds and doesn’t trigger a credit check. Your details aren’t shopped around to a pile of lenders, so you won’t be chased by strangers. A real person reviews your situation and calls you to talk options. Please be accurate on the form, including stock value and whether you own property, so the first suggestion is the right one.

Find out if your stock can work harder →