Inventory finance for small businesses explained

Inventory finance for small businesses explained


min read

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What is inventory finance?

Some businesses need to make big investments in stock upfront, leaving cash tied up in assets and putting pressure on day-to-day cash flow. And, that money can remain out of reach if stock isn’t sold for several months.

This can be frustrating, but inventory finance, or asset-based lending, solves this problem. It allows you to get hold of new capital by using your existing stock as collateral against a loan. Once secured, you’ll have the financial freedom to grow your business and make new investments as you choose.

How does inventory finance work?

Most businesses use inventory finance as a way of buying more stock. This could be to fulfill a large order, prepare for an event or get ready for the start of a busy season.

You’ll need to decide how much of your inventory you want to use as collateral and choose an inventory finance lender that meets your needs – some will charge more or less in fees and interest rates are likely to vary too.

Once set, you’ll receive your cash and can gradually pay it off as you sell your inventory. After paying it back, you can even choose to take out a new inventory finance loan and start the cycle again.


Inventory finance example

Let’s say you run a toy business. It’s September and Christmas is just around the corner. You’re hoping this will be a record year for you and want to build up a large supply of toys before the festive season begins.

You’ve already got some toys in stock and decide to use them as collateral to take out an inventory finance loan. This way, you can buy even more despite knowing you won’t start selling them until nearer Christmas. Once you’ve secured your finance, you get to work buying materials and assembling new toys.

As December approaches, sales skyrocket as expected and you begin paying your loan until you’re all square with your lender.

Inventory finance alternatives

Inventory finance is just one option for businesses looking to raise capital. So, if it’s not for you, don’t worry. We’ve got two finance options available that could suit your business.

With our Flexi-Loan, you could borrow up to £500,000 to invest in new stock, bridge gaps or keep business flowing smoothly. Apply in a matter of minutes and hold the money for as long as two years or as little as one day – we’ll never charge you early repayment fees.

Or, if you’re after finance that breathes with your business, our Revenue-Based Loan could be a better fit. Borrow up to £50,000 and repay a percentage of your monthly sales – no interest rates, just a fixed fee.


Words by
Dan Howarth
Article published on
January 24, 2023
Last reviewed on:
December 11, 2023

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Inventory finance for small businesses explained

Taking finance can be a great way to grow your business – enabling you to make new investments in staff, equipment or premises. If that’s what you’re after and you run a business that typically holds large amounts of stock, then it might be worth considering inventory finance.

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