Stock finance which is also known as purchase finance is essentially a short-term funding solution against a specific transaction(s). Generally, it is “off-balance-sheet” finance and does not affect existing finance facilities such as bank overdrafts and invoice discounting. Purchase finance can also allow you to take advantage of discounts for prompt payment. The finance company offers you credit and pays your supplier on time. The finance company can often obtain credit from suppliers and act as the buyer of goods.
It is well suited to businesses who are either importers or international traders looking to source and supply goods within a short time scale. The trade financier will look at the strength of the order and decide to fund the purchase rather than the credit-worthiness of the entire business. This allows many SMEs, including start-ups, to obtain this type of finance with relative ease.
Purchase finance can be used to:
- Import/export goods
- Refinance existing stock
- Buy goods or services on credit on the financiers’ credit-rating which may be stronger than yours
- Negotiate supplier discounts in exchange for prompt payment
- Realise an opportunity requiring ready cash such as buying out of season or liquidation stock
- Buy seasonal stock