What Is Stock Finance UK?
Alex Kyriakides
Partnerships & Trade Manager · Oct 13, 2024 · 7 min read
Stock finance is a form of asset-based lending that lets UK businesses borrow against the value of their existing inventory or fund the purchase of new stock. For businesses where goods sit in a warehouse for weeks or months before being sold, stock finance converts that idle inventory into working capital. It is particularly useful for retailers, manufacturers, importers, and distributors who carry significant stock levels but cannot access that value without selling it first.
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How stock finance works
A lender advances a percentage of the value of your eligible stock, typically between 50% and 80% of the wholesale or cost value (known as the loan-to-value ratio, or LTV). The stock itself acts as the security. As you sell stock and repay the advance, the facility revolves: you can draw again against new stock purchased. This makes it a revolving facility rather than a fixed-term loan, designed to flex with your purchasing and sales cycle.
Lenders will typically require visibility of your inventory through regular stock audits or real-time reporting from your warehouse management system. Eligible stock is generally finished goods or raw materials with a clear resale market. Work in progress, obsolete stock, and slow-moving lines attract lower LTV ratios or may be excluded entirely. The lender needs confidence that the stock can be liquidated at a predictable value if the business cannot repay.
Who uses stock finance?
Stock finance is most commonly used by businesses in three categories. First, seasonal retailers: a garden furniture company might purchase a full season's inventory in January for sale from March to August. Stock finance funds the purchase in January, with the facility repaid as sales come in. Second, importers and distributors: businesses buying large container shipments from overseas suppliers face a gap between paying for goods and receiving payment from customers. Stock finance bridges that gap.
Third, manufacturers with long production cycles: businesses that hold significant raw material or component inventories before production and sale use stock finance to fund that inventory position without tying up cash. In all cases, the common thread is a business with strong underlying demand but a timing mismatch between paying for stock and receiving revenue from its sale.
"Stock finance solves a specific problem: you have valuable goods sitting in a warehouse but cannot access their value until you sell them. For inventory-heavy businesses, it is one of the most efficient working capital tools available."
- Alex Kyriakides, Partnerships & Trade Manager
Stock finance vs invoice finance
Invoice finance and stock finance address different parts of the cash flow cycle. Invoice finance unlocks the value of invoices you have already raised: money you are owed by customers. Stock finance unlocks the value of inventory you hold: goods you have paid for but not yet sold. They are often used together. A business might use stock finance to fund the purchase of inventory, then invoice finance to accelerate payment once the goods are sold and invoices raised.
The LTV ratios in stock finance are generally lower than in invoice finance because stock is harder to liquidate than a receivable. An invoice from a creditworthy debtor has a clear, near-term cash value. Unsold stock requires a sale process, market conditions, and sometimes a discount to shift quickly. Lenders price that additional risk into both the LTV and the interest rate.
Costs and typical terms
Interest on stock finance facilities is typically quoted as a margin over base rate or a monthly percentage of the facility utilised. Arrangement fees of 1% to 2% of the facility size are common. Stock audit costs (charged by the lender's appointed valuer) are usually passed through to the borrower and can range from a few hundred to a few thousand pounds depending on facility size and frequency. Some lenders also charge a non-utilisation fee on any undrawn portion of the facility.
Facility sizes typically start from around £100,000 and extend to several million pounds for larger businesses. Minimum turnover requirements vary, but most lenders look for at least £500,000 of annual revenue and a track record of at least 12 months. Newer businesses with strong purchase orders or contracts may access trade finance as an alternative if stock finance eligibility criteria are not yet met.
Frequently Asked Questions
Can I use stock finance for goods in transit?
Some lenders will fund goods in transit under a trade finance or pre-shipment finance structure. Standard stock finance generally requires goods to be in the UK and accessible for audit. Speak to a broker who specialises in trade finance if your stock is primarily in transit.
What happens if I cannot repay a stock finance facility?
The lender has security over the stock. In a default scenario, the lender can appoint an administrator or asset recovery specialist to liquidate the stock and recover the advance. This is why lenders apply conservative LTV ratios: they need confidence that a forced sale would cover the outstanding balance.
The bottom line
If your business carries significant inventory and you want to understand whether stock finance could improve your working capital position, the team at Spark Finance can assess your eligibility and identify the most competitive facilities on the market. Start at apply.sparkfinance.co.uk.
Check your eligibilityAbout the author
Alex Kyriakides
Partnerships & Trade Manager
Alex specialises in partnerships and international trade finance at Spark Finance, working with UK importers and exporters to structure letters of credit, supply chain finance, and trade facilities. With over eight years in commercial finance, he has arranged funding across manufacturing, distribution, and professional services.
