Quick answer
Stock is cash sitting on a shelf. When you buy ahead of a busy period, money leaves your account long before customers pay. A working-capital loan or line of credit can fund the purchase; unsecured funding for trading businesses is typically $5,000 to $500,000, sized on turnover and bank statements.
Key points
- Stock ties up cash from the day it is bought until the day it sells and is paid for.
- Overstocking is as risky as understocking; size purchases to expected sell-through.
- A line of credit suits repeated stock cycles; a loan suits a single large purchase.
- Tell the lender your stock turn: how quickly the shelf empties.
A baker who buys the flour for Easter in February is fronting weeks of cash on a promise. Retailers, wholesalers, online sellers and workshops do the same on a different scale. Stock is the clearest example of money that has left the account without yet becoming income, and funding it well means thinking like both a buyer and a lender.
Why does stock squeeze cash so hard?
Because the timeline works against you. You pay the supplier, wait for delivery, put the goods on the shelf, sell them, and then wait again for the customer to pay if you invoice. Every day along that path is a day your cash is somewhere else.
Business.gov.au identifies inventory as one of the main places to improve cash flow, suggesting owners avoid overstocking, automate ordering, clear slow or expired stock, negotiate supplier terms and buy stock when orders come in.
Those are all sensible. The problem is that some stock decisions cannot wait for orders: seasonal peaks, imported lines with long lead times, minimum order quantities. For those, the choice is to fund the purchase or lose the sales.
How much stock is the right amount?
Start from demand and work backwards.
- Last year’s sell-through. How much of this line actually sold in the equivalent period?
- Pre-orders and commitments. Orders already in hand reduce the risk.
- Lead time. How long between ordering and having it on the shelf?
- Shelf life or fashion risk. Perishables and trend lines need a tighter cap.
- Cash left afterwards. After the purchase, can you still pay wages and rent?
An illustration, using no real business: an online homewares seller expects to sell about $90,000 of product between October and December. Her supplier needs payment in full 10 weeks before delivery. She has $20,000 in the bank. Her stock need is roughly $55,000 at cost, so the gap before the peak is around $35,000, plus a margin for freight and packaging.
The Dough gap calculator lets you do a version of the same sum with your own costs and payment timing.
Which funding routes suit stock?
| Situation | A likely fit |
|---|---|
| Repeating stock cycles, gaps vary | Line of credit |
| One large pre-season purchase | Working-capital or short-term loan |
| Big, one-off bulk buy with property available | Property-backed funding |
| Supplier offers terms | Use them first, borrow for the remainder |
For trading businesses, unsecured funding is typically $5,000 to $500,000, sized on turnover and bank statements. See the pages on working capital loans and the business line of credit.
What do lenders want to know about stock?
They will read your bank statements first, then ask about the stock. Helpful answers include:
- what you sell and to whom;
- how quickly a typical line sells through;
- how last year’s peak performed;
- whether the stock is perishable, seasonal or evergreen;
- how you will repay, and from which sales.
If the business has pre-orders, wholesale commitments or contracts, mention them. Anything that moves the plan from hope to evidence helps.
What are the risks?
Three are worth naming.
Overbuying. Cash tied up in slow stock is the quickest route to a squeeze. The fix is to set a ceiling on stock purchases before the sale, not after.
Timing slippage. A late shipment can miss the peak you borrowed for. Build in a buffer in your plan and, where you can, in your supplier terms.
Margin surprises. Freight, exchange movements and discounting can shrink what the stock actually earns. Use conservative margins when you size the loan.
Our guide on funding a busy season before it arrives walks through the timeline month by month.
Should I negotiate terms first?
Yes. Business.gov.au lists trade credit from suppliers as one of the funding sources worth considering, and negotiating better supplier terms is a core cash-flow tactic. Even a small extension (from 14 to 30 days, say) can cut your funding need meaningfully. If a loan is still needed, you will be borrowing less and sounding more prepared.
How do I know if stock is selling fast enough?
Stock turn is the simple measure. Divide the cost of goods sold over a period by the average value of stock held, and you get how many times the shelf empties and refills. A higher number means cash comes back faster. Compare it across product lines: the slow lines are the ones tying up money.
You do not need accounting software to get a feel for it. Walk the shelves and ask which lines have not moved in 60 or 90 days. Those are candidates for discounting, bundling or not reordering. Clearing slow stock is itself a source of funding, as business.gov.au suggests, because it turns dead inventory into cash without any lender involved.
Time to size it
When you know your number, tell us what you need. Include the amount, the season, how fast the stock sells and when you will be repaid. A lending specialist reads your enquiry and rings you. There is no credit check just to ask, and your details are not sprayed across a pile of lenders.
Accurate answers are what shorten the conversation: use real sales, real dates and real figures. See if you qualify before the order deadline.
Frequently asked questions
Can I borrow to buy stock?
Yes. Stock is one of the most common working-capital purposes. Lenders look at turnover, bank statements and how quickly you sell through what you buy.
How much stock should I buy before a peak?
Enough to meet realistic demand, not hopeful demand. Look at last year's sales, any pre-orders and how fast stock moved. Business.gov.au warns that overstocking ties up cash.
What if the stock doesn't sell?
Then repayments continue and the cash is still trapped. That is why sell-through assumptions and a margin of safety matter more than the size of the order.
Should I use supplier credit instead?
Where it is available on good terms, supplier credit can be the cheapest funding of all. Business.gov.au lists trade credit as a funding source, and negotiating longer terms is a standard cash-flow tactic. A loan can fill what terms cannot.
Do I need property for a big stock purchase?
Not for smaller amounts. For larger sums, property-backed funding from $20,000 to $5,000,000 may be an option if you own property.