This week we are looking at Stock Finance. Whether you are a motor trader, wine merchant or a universal wholesaler, Stock Finance could be for your business.
So, how does it work? In simple terms, lenders purchase the stock you need from a seller on your behalf.
More commonly lenders are providing stock finance on a revolving credit basis, meaning you can be supplied with a facility, organise the purchase and the funder pays the invoice until your limit is reached and once you repaid they invoice, the facility is still there to benefit from.
What are the benefits? Well, for a start:
• You will be able to benefit from larger stock volumes that you wouldn’t normally afford
• Benefit from special deals that would normally pass you buy because of cash flow
• Import stock from outside of the country, which means the lender will also cover the freight, VAT and delivery costs wihtin the facility arranged
• Great for start ups who wholesale stock i.e. car dealers wanting to sell high end vehicles or wine merchants selling 1811 Chateau d’Yquem
• Loans can be agreed typically within 36 hours
However, like all finance there are some things to note before making your decision, and some tips to ensuring you are eligible for the facility and secure it at a great rate.
First the things to note;
• There can be a request for Personal Guarantees as well as a securing debenture against the business
• If you are one of the UK’s small SME’s or starting up there is often a requirement that one if not all directors has to be a homeowner. This type of facility is never secured on your own home, but it does make it a more attractive lend
• Rates can be from 4.6% per month calculated on a daily basis (0.15% per day)
• There is sometimes an admin fee applicable to organise the invoice payment and register of interest or HPI if vehicles
What can you do to strengthen your application;
• Make sure your managements and filed accounts are up to date, regardless of being a sole trader or ltd status. The lender will want to make sure you can afford the payments
• If you’re a start-up, a business plan and cash flow forecast will be a great addition to your application. Not always needed, but will help
• If you or your directors are not a home owner, you will need to find a third party who is to guarantor against the facility
• Bank statements…always a must and typically you will need 6 months, but some lenders can ask for
Overall Stock Finance is a great way to access wholesale stock you would otherwise not afford, but ensure you have the right facility on board. There will typically be document/arrangement fees.
Keep posted for next weeks instalment….