By Daniel Hunter
UK businesses are increasing the amount of money they borrow against their unsold stock as they rush to replace traditional bank lending says Wilkins Kennedy LLP, the Top-20 accountancy firm.
Borrowing by UK businesses, secured against unsold stock, shot up 18% from £1.9bn to £2.3bn over the last year.
Anthony Cork, Partner, of Wilkins Kennedy says that borrowing against unsold stock is one of the few ways that a struggling business can get funding through a tough trading period.
Anthony Cork, comments: “Manufacturers and retailers have a lot of value of their company tied up in the stock held in warehouses, store rooms and production lines, so they can use this kind of finance to free up those assets.”
“It is also one of the few ways that a retailer or manufacturer can get extra finance to tide them over once all their other credit lines are maxed out.”
“You can still borrow against stock once you have already borrowed against the value of your invoices or against the value of your premises — it can give you that bit of headroom you might need.”
Wilkins Kennedy adds that since the start of the recession in 2009, borrowing against the value of unsold stock is up 52% from £1.5bn as businesses have been forced to find alternatives to traditional bank lending.
Wilkins Kennedy says borrowing secured against stock can provide more security for both borrower and lender. As stock can be sold relatively easily it makes it an attractive form of collateral to the lender.
Unlike an overdraft facility the lender cannot normally withdraw a funding facility secured on stock unless the borrower has stopped making payments on the loan.
Explains Anthony Cork: “The increase in lending against stock is part of the broader trend to replace traditional bank lending with alternative forms of funding. If you are a business in an out of favour sector like retail or you have suffered quite a deep decline in profitability you are going to find it hard to get a high street bank to lend to you.”
“That is why this growth of in invoice financing and lending secured against stock is so important.”
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