Inventory Finance

Inventory Finance Options in Australia

Explore Inventory Finance options in Australia. Get competitive interest rates and support for your cash flow and inventory management needs.

aPPLY ONLINE CALL: 1300 66 12 11
Inventory Finance

An Essential Guide for Business Owners

As a business owner, there are times when you may find yourself unable to pay suppliers on time or needing to make large purchases to expand, but find yourself short on funds. Inventory finance is an adjustable financing option that allows you to access the cash needed to pay suppliers and order large amounts of stock. This can help you stay competitive in your market and seize opportunities for commercial growth.

Inventory finance acts as a financial stop-gap between the time you supply invoices for customer orders and when you receive payments. It gives you the cash to support ongoing business operations, maintain strong customer relationships, and handle outstanding invoices without stress. Essentially, while inventory finance pays your suppliers, it frees up cash for you to buy more products, speed up order turnaro

What is Inventory Finance?

Definition and Basics

Inventory finance is a short-term business loan that uses your existing inventory or the stock you plan to buy as collateral. It allows a business to borrow a specific amount to purchase new inventory. By leveraging your inventory, you gain access to vital cash flow without having to use your property or other business assets as security. This type of trade finance advances you a portion of your inventory’s liquidation value, which the lender recoups when you sell the stock. Inventory can include finished goods, parts, or raw materials.

Get Started
Mechanics of the Process

How Does Inventory Financing Work?

Inventory finance allows you to take a short-term loan to buy your merchandise in advance, without depleting your cash reserves. The merchandise purchased substantiates the loan, so there’s no need to secure it with your other assets.

  1. The finance lender pays your supplier.
  2. The supplier ships the merchandise, filling your stock supply.
  3. You continue selling the merchandise and repay the lender once sales are made.

Funding can often be approved under a director’s guarantee, with potential borrowing amounts of up to $1 million, depending on the lender. The finance term depends on how quickly you sell your stock. Although you may face higher interest rates due to the short-term nature of the loan, a quick repayment is advisable to avoid cutting into your profits.

Types of Inventory Finance

Inventory Term Loan

A lump sum is borrowed and repaid in fixed monthly payments over a set period. The inventory serves as collateral.

Inventory Line of Credit

An at-call credit facility lets you access funds anytime to purchase inventory. The lender pays your supplier directly, and you repay when the inventory is sold. This type is also known as ‘floorplan finance.’

Benefits of Inventory Finance

Advantages for Businesses

Obtaining inventory finance can benefit your business in several ways:

  • No need for asset security:
    Unlike other loans, inventory finance doesn’t require you to put up personal or business assets as security.
  • International suppliers:
    Facilitates smoother transactions with overseas suppliers, reducing delays.
  • Preservation of working capital:
    Allows your cash flow to be used for daily business operations rather than tying up funds in inventory.
  • Supports business growth:
    Enables you to purchase larger quantities of stock and take on bigger orders, boosting business growth and profit margins.

Inventory Finance Options

Flexible Financing Structures 

Inventory finance typically involves short-term loan agreements, with options to pay back the loan and interest weekly or daily, depending on the terms. The flexibility of payment schedules makes it easier for businesses to manage their cash flow and avoid longer-term financial commitments.

Inventory Finance Interest Rates and Fees

Navigating Costs

Inventory finance is highly competitive, with a variety of interest rates and fee structures available. It’s essential to shop around for the best package to suit your needs. Interest rates can range from 10-20%, and additional costs may include establishment fees and account maintenance charges. Knowing the full cost of the finance agreement in advance is crucial for informed decision-making.

How to Qualify for Inventory Finance

Eligibility Criteria

To qualify for inventory finance, here’s what most lenders will look for:

  • Industry Experience:
    Expectation to have been in business for a minimum of two to three years.
  • Annual Income:
    Proof of annual revenue, which varies across lenders.
  • Credit History: A review of your credit history to ensure no defaults on previous loans.
  • Industry Type: The stability of your industry affects loan approval, with more predictable industries standing a better chance.
Learn More

How to Apply for an Inventory Finance Loan

Application Process 

The documentation requirements for inventory finance can vary between lenders. Generally, you’ll need:

  • The balance sheets of your finances for the past two years (considered the minimum expectation).
  • Current profit and loss statements for the past three years.
  • A projected sales forecast.
  • Business tax returns to give the lender an overview of your revenue history.
  • A detailed list of your on-hand inventory.
  • Inventory management records showing the historical speed of your inventory turnover.

Being prepared with these documents can streamline the application process and improve your chances of securing the loan. Additionally, be aware that some lenders might send an independent auditor to verify your business’s financial health and inventory.

Advice Tips and Considerations

Expert Recommendations 

When considering inventory finance, it’s crucial to:

Person Holding Black Calculator While Using Laptop
Expect Audits

Be prepared for lenders to send an independent auditor to review your inventory and business operations to reduce their risk.

Person's Hands on Top of Macbook Air
Research Thoroughly

Always compare offers from different lenders and evaluate their experience in inventory finance specifically. Not all lenders have the same level of expertise or favourable terms.

Question Marks on Paper Crafts
Ask Questions

Ensure you fully understand all aspects of the loan agreement before committing. Inquiring about a lender’s experience with inventory finance will help you identify the best partners.

By understanding and leveraging inventory finance, Australian business owners can effectively manage cash flow, capitalize on growth opportunities, and maintain operational stability. Using the outlined steps and advice, you can make informed decisions and choose the best inventory finance options to support your business needs.

FAQs

Not sure? Have additional questions? Try here 

Before applying, reflect on:

→ Inventory Turnover Rate: How quickly do you usually sell your stock? Fast-moving inventory is more appealing to lenders.

→ Credit History: Your credit history plays a significant role in loan approval; a good record makes it easier to secure finance.

→ Inventory Value Confidence: Lenders may want to inspect your inventory to confirm its value hasn’t decreased, and to verify accurate inventory records.

Typically, businesses can borrow up to 80% of their inventory’s liquidation value. The exact amount will depend on factors such as sales turnover and the lender’s assessment of your business’s financial health.

Inventory finance interest rates range from 10-20%, with the addition of setup and maintenance fees. Be sure to understand all potential costs beforehand.

Eligibility generally includes:

→ Having a business with an ABN or ACN (Australian business or company number).
→ Operating for a minimum of six to twelve months.
→ Demonstrating a track record of selling inventory and maintaining steady turnover.
→ Maintaining a good credit score (usually around 400 or higher, though terms may vary).

Required documents often include:

→ Financial statements (balance sheets, profit and loss statements).
→ Tax returns (business and possibly personal for sole traders).
→ Detailed inventory lists and turnover records.
→ Sales forecasts.

Repayment terms can vary based on the agreement but generally range from 1 to 6 months. It’s important to match repayment schedules with your sales forecasts to ensure you can meet loan obligations without financial strain.

Inventory finance in Australia is a type of business finance that helps companies purchase and manage their inventory or stock. Businesses can use this finance to cover the cost of inventory upfront and repay the loan amount as the stock is sold. This type of finance can help manage cash flow and maintain stock levels effectively.

Business inventory finance works by allowing businesses to take out a loan using their inventory as collateral for the loan. The loan amount is often based on the value of the inventory or stock. As the inventory is sold, the business repays the loan. This allows businesses to maintain a steady supply of stock or inventory without financial strain.

Using inventory finance offers several benefits, including improved cash flow management, the ability to maintain optimal inventory levels, and the flexibility to purchase new stock without depleting cash reserves. It also helps businesses meet customer demand promptly and take advantage of supplier discounts by ordering in bulk.

Yes, you can use inventory finance even if you have an existing business loan. Inventory finance is often considered a separate type of finance and can complement other business loans. However, it’s essential to ensure that your total debt is manageable and that you can repay all loans on time.

A secured business loan requires collateral, such as inventory or other assets, whereas an unsecured business loan does not require any collateral but typically has higher interest rates due to the increased risk for the lender. Inventory finance can be secured, using stock or inventory as collateral for the loan.

Yes, inventory finance can help if you need to purchase new stock urgently. By taking out an inventory loan, you can quickly access the funds required to finance the purchase of new inventory. This can be particularly useful during peak seasons or when you need to replenish stock levels swiftly to meet increased customer demand.

There are various types of inventory finance options available, including floorplan finance, invoice finance, and traditional inventory loans. Each option has its own terms and conditions, and it’s important to choose the one that aligns best with your business needs and financial situation.

Inventory finance can be a good option for small businesses that need to manage their cash flow and maintain adequate inventory levels without tying up significant amounts of capital. It allows small businesses to access the inventory they need in a timely manner, helping them grow and meet market demands effectively.

Before taking out an inventory loan, consider your business’s current financial situation, your ability to repay the loan, the value and turnover rate of your inventory, and the terms offered by different lenders. Reviewing these factors will help you make an informed decision and ensure that the inventory finance option chosen is suitable for your business purpose.

Why not give us a call, or send us an email and get a direct response from one of our finance experts. We’d be happy to give you a hand and help point you in the right direction.

TALK TO A BROKER TODAY

Helping you find the right loan product for your needs.
aPPLY ONLINE CALL: 1300 66 12 11