Manufacturers expanding production rarely invest in just one area. Growth often means purchasing new machinery, increasing inventory levels and building capacity to fulfil future demand, often before the resulting sales begin to generate cash.
It is easy to assume that the stock figure shown on a balance sheet reflects the amount a business could borrow against. In reality, lenders look beyond the accounting value. Inventory is considered in the context of factors such as ownership, turnover, quality and likely resale value, as well as how it sits alongside other assets within the business.
At Aldermore, we often work with manufacturers that are investing in several areas at once. A business may be purchasing machinery, increasing stock levels and preparing to fulfil a growing order book, all while managing day-to-day cashflow. Understanding how inventory contributes to borrowing capacity can therefore play an important role in wider funding decisions.
Yes. Stock or inventory can form part of an asset-based lending (ABL) facility if it meets a lender's criteria.
For manufacturers, inventory can provide an additional source of funding alongside trade receivables, plant and machinery or the business premises. This can be particularly valuable where businesses are increasing production capacity, preparing for growth or fulfilling larger customer orders.
However, funding is not usually based on the full value recorded in the accounts. Instead, lenders look at what the stock could realistically be worth and may lend against a proportion of that value.
Yes. Manufacturers can sometimes borrow against inventory through an asset-based lending facility. The amount available depends on factors such as ownership, stock type, turnover, resale potential and overall asset quality.
At Aldermore, we work with many businesses where inventory represents significant value. One thing we often discuss with clients is that not all stock offers the same borrowing potential. Two inventory lines may have an identical balance-sheet value, but factors such as turnover, ownership and market demand can lead to very different funding outcomes.
Manufacturing businesses often face a gap between investing in growth and receiving payment from customers. Cash may be tied up in raw materials, work in progress and finished goods long before invoices are settled.
At the same time, businesses may be investing in new machinery, recruiting staff or expanding production capacity to meet customer demand.
Inventory funding can help unlock working capital already invested in the business, creating greater flexibility to purchase stock, support growth plans or invest in operational improvements.
Inventory is generally more likely to be considered where ownership is clear, demand is proven and there is an established market for resale.
The type of inventory can make a significant difference.
Raw materials may be suitable where ownership is clear and there is an active resale market. Standard commodities and commonly used components are often easier to support than highly specialised materials with limited alternative uses.
Work in progress (WIP) can be more complex because the goods are not yet complete. Partially finished products can be more difficult to sell, so lenders may take a more cautious approach and, in some circumstances, exclude WIP from funding calculations altogether.
Finished goods are often the most straightforward type of inventory to support because they are closest to generating revenue. Products with predictable demand and an established resale market are generally viewed more favourably than highly bespoke goods produced for a single customer or contract.
When reviewing inventory, lenders typically work from the headline stock value in the accounts and then consider a range of factors to determine how much of that value can support lending.
Stock is an asset, but lenders do not normally rely solely on the balance-sheet value. Inventory is reviewed according to factors such as ownership, market demand, turnover and recoverability before lending values are determined.
Ownership needs to be clearly evidenced. Consignment inventory, goods owned by another party, or stock subject to ownership restrictions may not qualify.
Turnover is about more than how quickly products sell. It can also provide insight into customer demand and whether inventory levels are aligned with trading patterns.
Fast-moving stock is generally viewed more positively than inventory that has remained in storage for long periods. Older stock may face greater risks of obsolescence, changing demand or price erosion.
Lenders will also consider how easily stock could be sold if required
Standard products with a broad customer base are often easier to support than highly customised inventory designed for a specific customer or end use.
For example, a manufacturer holding standard components against a strong order book may be viewed differently from a business carrying specialist stock where future demand is less certain.
Even where inventory is suitable for lending purposes, funding is usually based on a percentage of its assessed value rather than its full accounting value.
The amount available will depend on factors such as stock type, liquidity, turnover and recoverability. Independent valuations may also be used to provide a practical view of what the inventory could realistically achieve in the market.
Many manufacturers build inventory ahead of peak trading periods, major contracts or planned expansion.
Larger inventory holdings do not automatically translate into higher borrowing capacity. Instead, lenders will want to understand what is driving the increase, how long stock is expected to be held and whether demand is likely to support those levels.
For manufacturers expanding production, this context is important. A seasonal stock build ahead of expected orders may be viewed differently from excess inventory that has accumulated without a clear route to sale.
Concentration is another important consideration. If a significant proportion of inventory is linked to a single product line, customer, supplier or market, lenders may look more closely at any associated risks.
Some types of inventory can be more challenging to include within an ABL facility, including:
While these items may still appear on the balance sheet, they may offer limited value from a lending perspective.
For manufacturers investing for growth, this is often where ABL comes into its own.
Cash is frequently tied up long before an invoice is raised. Raw materials need to be purchased, stock manufactured and orders fulfilled before receivables are generated. At the same time, the business may be investing in machinery to increase future capacity.
Looking at receivables, inventory, plant and machinery and commercial property together can create a funding structure that reflects how the business actually operates, rather than focusing on a single asset in isolation.
This can help businesses access funding that better supports the realities of the trading cycle while creating additional flexibility for investment and growth.
Businesses should be prepared to provide:
Accurate reporting helps lenders understand what stock is held, where it is located and how readily it could be converted into revenue.
Ultimately, the key question is not simply how much stock appears on the balance sheet. It is how much of that inventory is owned, saleable, regularly turning and capable of generating value. Understanding that distinction is central to how inventory funding works within an asset-based lending facility.
For manufacturers investing in machinery, increasing stock levels and expanding capacity at the same time, funding needs rarely fit neatly into a single solution. By looking at receivables, inventory, operational and fixed assets together, asset-based lending can provide a more joined-up approach to supporting growth.
Aldermore's Asset Based Lending specialists work with manufacturers across a range of sectors to understand how those assets interact and structure facilities around the realities of the production cycle, helping businesses access funding that supports investment plans, working capital requirements and long-term growth ambitions.
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