Inventory Finance: Stock Funding and Broker Evidence

Inventory finance funds goods a business buys or carries for resale, covering the cash gap before those goods sell. For a broker, the assessment starts with the stock, its funding value and the cash available to repay the facility. A profitable sale forecast doesn’t resolve disputed ownership or stock that the funder excludes.

Define the Inventory-Funding Need

Identify what the business will resell and when it must pay for that stock. Record the supplier payment dates, delivery dates and expected customer receipts. The funding gap runs between money leaving the business and sale proceeds becoming available.

For a retailer, inventory might be clothing bought before a seasonal sales period. For an equipment dealer, excavators held for resale are inventory too. The dealer’s forklift used to unload deliveries is an operating asset, which needs an asset finance assessment.

Keep those uses separate even when the goods look similar. Equipment inventory finance concerns machines held for resale. Financing a machine that earns revenue through use involves a different repayment case.

The Australian Government’s funding guide identifies lines of credit and trade finance as stock-funding options. It distinguishes buying inventory from acquiring vehicles or equipment for the business.

Unpaid customer invoices create another possible funding base. Invoice finance uses receivables, while an inventory-backed facility relies on accepted stock. Assess which part of the purchase-to-payment cycle creates the shortage before choosing between them.

Map the Facility and Funding Base

Map how money reaches the supplier and how the business repays it before comparing funders. A facility used to buy stock doesn’t necessarily calculate availability from stock value.

Funding route	How it can meet the stock need	Evidence that decides fit
Business line of credit	Draw funds within an approved limit to meet purchases	Permitted use, draw conditions, repayment obligations and business cash flow
Trade-finance arrangement	Fund supplies for an order through an agreed purchase process	Supplier terms, order evidence, payment process and timing of customer receipts
Inventory-backed facility	Borrow against stock the funder accepts under its valuation rules	Eligible stock records, valuation, security priority and ongoing reporting

These are routes to assess, not a promise that each business qualifies. Where the proposal relies on cash flow without a stock-based funding calculation, compare the relevant unsecured business loan structure.

Complete a facility summary with the borrower entity and supplier, stock location, purchasing terms, requested limit and draw process. Specify whether draws pay the supplier directly or reimburse the business. Identify the repayment source and the date each obligation falls due.

ScotPac’s 12 June 2026 retail line-of-credit explanation describes funding inventory purchases and paying interest on drawn funds. That describes a use of credit. It doesn’t establish that a retailer’s whole stock ledger determines the available limit.

Test Eligible Stock and Its Value

Build the funding base from stock the proposed funder accepts, using its documented valuation method. The inventory total in the accounts isn’t automatically the amount available to borrow.

Separate finished goods from raw materials and work in progress. Include either production category only where the proposed facility accepts it. Record whether goods are owned, on consignment, in transit or held at a third-party warehouse.

Flag obsolete or slow-moving goods, perishable items and stock subject to ownership or quality disputes. Apply the funder’s exclusions to those categories. Don’t assume every funder rejects the same goods or applies the same ageing cut-off.

Stock evidence	What to reconcile	Effect on the assessment
Quantity by product and location	Ledger quantities against recent physical counts	Missing goods reduce the stock available to support funding
Purchase cost	Supplier invoices against recorded unit cost	Cost errors distort the starting valuation
Ageing and sales history	Receipt dates against units sold and returns	Older goods or weak sales can undermine expected recovery
Valuation basis	Accepted cost or recovery basis against the facility terms	Retail selling price can differ from the funder’s accepted value
Ownership records	Purchase agreements against consignment and supplier terms	Goods require the ownership and security treatment the facility permits

Use the documented calculation to turn accepted stock value into funding availability. Deduct reserves or other adjustments only where the terms require them. Then account for existing drawings to calculate the remaining amount available.

Keep the approved limit and current availability as separate figures. A stock exclusion can reduce availability while the headline limit stays unchanged. Use the offered advance calculation, never a presumed market-wide percentage.

Check Security and Priority

Review the proposed security alongside existing lender and supplier interests before the client commits. An inventory facility can compete with an existing claim over the same stock or wider business assets.

Obtain a current Personal Property Securities Register (PPSR) search using the correct entity identifiers and any relevant serial-number searches. Retain the certificates, registration details and underlying security agreements. Reconcile each registered interest with the assets it covers and the party that holds it.

Supplier retention-of-title terms let a supplier retain ownership until payment. Consignment arrangements also need attention because the business holds goods supplied by another owner. The PPSR’s business-asset guidance explains why a written agreement alone can leave an interest exposed.

The PPSR’s priority guidance gives default rules for competing security interests. Perfection protects a security interest against third parties, commonly through registration. A perfected interest generally takes priority over an unperfected interest, subject to exceptions.

A purchase money security interest can receive special priority when the relevant requirements are met. It can arise when a party finances the purchase of goods or supplies them on retention-of-title terms.

Ask the client’s legal adviser to resolve conflicting interests, registration defects and any required priority agreement or release. Have the adviser confirm registration timing and the treatment of stock-sale proceeds. A search or registration doesn’t establish that every transaction is enforceable, suitable or first in priority.

Verify Stock Controls and Monitoring

Use reconciled stock records and warehouse controls to show that the proposed funding base can be monitored. Reports must explain changes in stock as goods arrive, move, sell or leave through returns and write-offs.

Keep an inventory ledger with product identifiers, quantities, unit costs, receipt dates and locations. Retain purchase orders, supplier invoices and delivery records. Record who approves adjustments and how physical counts reconcile to the ledger.

Document warehouse access, storage conditions and arrangements with third-party warehouse operators. Match insurance evidence to the goods, locations and relevant risks. Record expiry dates and any funder requirements for insured amounts or noting its interest.

The facility terms determine reporting frequency and any inspection or audit requirements. Translate those obligations into named staff responsibilities and reporting dates. Monthly records won’t meet a facility requiring more frequent updates.

Concentration also changes the repayment case. A large share of stock in one product or seasonal range exposes the business to slower sales of that range. Show that concentration in the report instead of relying on the total stock value.

Model seasonal build-up before the purchasing peak. More stock can increase the cash required while ageing exclusions reduce the accepted funding base. Identify any shortfall between the planned draw and the availability calculated under the facility terms.

Test Turnover, Cash Flow and Repayment

Repayment depends on cash from selling stock after operating costs and other obligations are paid. Gross margin measures the part of sales left after the goods’ cost. Stock turn measures how quickly stock sells and is replaced.

Calculate historical annual stock turn as cost of goods sold divided by average inventory measured at cost. Use comparable periods and explain any seasonal distortion. Supplier payment terms and customer receipt timing decide whether that turnover produces cash before the facility’s repayment date.

Fictional Retailer Stress Test

Assume a retailer buys one batch for $100,000 and pays its supplier immediately. It contributes $40,000 and borrows $60,000 under an illustrative 90-day facility. These are fictional Australian-dollar figures, not a lender offer or advance-rate benchmark.

Assume the entire batch sells for $140,000 and customers pay immediately. Operating cash expenses attributable to the batch total $25,000. Interest and fees total $3,000, with all $60,000 of principal due on day 90.

Outcome	Base case	Slower Sales and Lower Margin
Stock sold by day 90, measured at cost	$100,000	$70,000
Cash received by day 90	$140,000	$91,000
Operating cash expenses	$25,000	$25,000
Interest and fees	$3,000	$3,000
Cash after those expenses	$112,000	$63,000
Cash after repaying $60,000 principal	$52,000	$3,000
Unsold stock remaining at cost	$0	$30,000

The base case has a gross margin of about 28.6%, calculated as $40,000 divided by $140,000. In the stress case, receipts equal 130% of the cost of goods sold. Gross margin falls to about 23.1%, and 30% of the batch remains unsold.

The stress case repays principal but leaves only $3,000 of cash. Unsold stock isn’t cash available for another supplier payment. If those goods also become ineligible, the next borrowing-base calculation can further restrict drawings.

The example assumes no tax payments, other debt repayments or opening cash beyond the purchase contribution. It excludes replenishment purchases and assumes the stated operating expenses cover the full 90 days. Add those obligations when modelling the client’s actual business.

A fallback needs evidence of accessible cash, an agreed supplier extension or realistic stock-clearance proceeds after selling costs. A future refinancing application alone doesn’t establish a repayment source. Test the fallback before treating slower sales as manageable.

Build the Broker Evidence File

Build one file that connects the stock purchase to available funding and repayment. Use the selected funder’s requirements to determine the final document set.

Record group	Evidence to retain
Borrower entity	Identity, ownership, authority to borrow and relevant company or trust documents
Financial and tax position	Financial statements, current management accounts, tax records, existing debts and bank statements
Supplier and purchasing	Orders, invoices, payment terms, delivery schedule and supplier agreements
Inventory	Ledger, ageing, sales history, location details, physical count results and valuation evidence
Insurance and storage	Insurance schedule, warehouse arrangements and records of stock controls
Security	Current PPSR results, security agreements, registration evidence and legal advice on priority
Repayment	Cash-flow forecast, turnover assumptions, stress test and documented fallback
Facility	Written offer, draw conditions, reporting obligations, fees and repayment schedule

Identify the legal funder behind any private lender or stock-finance brand. Record who advances the money, who holds security and who receives repayments. Compare the actual agreement, including guarantees and default rights, with the broker’s proposal.

ScotPac’s March 2026 business growth report describes Asset Based Finance combining inventory with other assets in one security pool. A blended facility therefore needs an assessment of the full proposed security pool. It isn’t evidence that an inventory-only request qualifies.

Compare current offers using the same stock schedule, requested limit and term. Hold sales timing and repayment assumptions constant. Record each offer’s valuation rules, reporting frequency, security scope, fees and principal obligations beside those assumptions.

Before commitment, resolve any unanswered stock-policy question in the written offer and any priority question through the client’s legal adviser. Submit the file only when the forecast supports the repayment schedule and the proposed drawings fit the accepted funding base.