Stock finance: buy the inventory before the customers arrive

Stock is cash on a shelf. You pay for it now and get the money back only when it sells — sometimes in days, sometimes in months. For a growing small business, that gap is often what stops it saying yes to a bigger order, a better supplier deal or a busy season it can see coming. Stock finance bridges the gap so the shelves are full when customers turn up.

When does it make sense to finance stock?

Borrowing for stock works best when you can see clearly how the stock turns back into cash. Typical situations:

• The busy season. Christmas for retailers, summer for pool shops, spring for nurseries, winter for heating suppliers.
• A bulk deal. A supplier offers a meaningful discount for a larger order or an end-of-line clearance.
• Import cycles. You pay before the container ships and sell over the following months.
• A new range. You’re adding a product line customers are already asking for.
• A big customer order. A contract or wholesale order needs stock you don’t yet have.

It makes less sense when stock is already slow-moving. More inventory on top of unsold inventory is a cash flow problem in disguise.

Which finance types suit stock?

Facility	How it works	Best for
Business line of credit	Draw what you need up to a limit, repay, draw again	Regular buying cycles, repeat orders
Seasonal business finance	Funding shaped around your peak, repaid after it	Predictable busy seasons
Invoice finance	Advance against unpaid invoices from business customers	Wholesalers and B2B sellers on terms
Unsecured business loan	Lump sum over a fixed term	One-off large orders or a new range
Property-secured loan	Larger amounts against property, $20k to $5m	Big import programmes or stock-heavy businesses

The common thread: match the facility to how quickly the stock sells. A three-year loan for stock that sells out by February leaves you paying for it long after it’s gone.

What do lenders look at?

Lenders want to know the stock will sell and the business will be able to repay. Expect questions about:

• Turnover and bank statements — how much cash flows through the business
• Gross margin — how much of each sale is left after the cost of the goods
• Stock turn — how often you sell through your inventory in a year
• Supplier quotes or purchase orders — what you’re buying and from whom
• Seasonal pattern — evidence from previous years that the peak arrives

If you sell to other businesses on terms, your aged debtors list helps too, since it shows money already owed to you.

Working out whether a bulk deal is worth it

A quick test before you borrow for a discount:

1. Work out the saving in dollars on the bulk order.
2. Ask for the total cost of the finance over the time it will take to sell the stock — interest and fees together.
3. Allow for the risk that some stock sells slowly or needs discounting.

Illustrative example: A homewares store is offered a supplier discount worth around $6,000 on a large pre-Christmas order. A line of credit drawn for three months, then repaid from December sales, costs far less than the saving. The same order financed over three years would erode much of the benefit.

If the saving comfortably beats the cost and the risk, it’s a good use of finance. If it’s close, a smaller order may be smarter.

Got an order or a season coming up? Tell us the numbers and a specialist will suggest which facility fits — enquiring has no impact on your credit file.

Tax time and stock

Small businesses with aggregated turnover under $10 million can use the ATO’s simplified trading stock rules. If you reasonably estimate the value of your stock changed by $5,000 or less during the year, you don’t have to do a formal stocktake or account for the change. Above that, the general trading stock rules apply. Buying extra stock just before 30 June won’t necessarily reduce your tax the way owners sometimes expect, because unsold stock on hand at year end is generally accounted for — talk to your accountant before ordering for tax reasons.

Keeping stock finance under control

• Set a clear repayment trigger — for example, repay the line of credit from the first weeks of peak-season sales.
• Track sell-through weekly during the season so you can slow reorders if a line stalls.
• Keep supplier terms in the mix. Business.gov.au suggests negotiating better payment terms with suppliers as part of managing cash flow — 30 or 60 days of trade credit can reduce how much you need to borrow.
• Clear slow stock before you borrow for new stock.

Our guides on retail finance and online store finance go into the patterns for those businesses.

Fund your next stock order

Tell us what you’re buying, roughly how much, and when you expect it to sell. A real person will suggest the facility that fits your stock cycle rather than the one that’s easiest to sell. There’s no credit check when you enquire, your details aren’t passed to a pile of lenders, and accurate answers about your turnover and timing mean we can match you properly the first time. See what’s possible for your stock.