Why retailers outgrow their bank facilities
Most retailers we speak to have an overdraft that was set years ago and has not grown with the business. Banks lend against historic profit and property, while a retailer's working capital need is driven by stock and timing. As sales grow, so does the stock you have to buy ahead of the season, and a fixed overdraft gets squeezed harder every year.
The answer is usually not a bigger overdraft. It is a facility that moves with the stock you actually hold, so the funding available rises as you build for peak trading and falls back when the stock has sold. You pay interest on what you draw, not on a headline limit sized for your busiest week.
How asset based lending works for retailers
Asset based lending is one revolving credit facility with a single borrowing base across up to four asset classes. For a retailer, stock is usually the largest. The lender commissions an independent appraisal that estimates what the stock would fetch in an orderly clear-out over a few months. That figure, the net orderly liquidation value or NOLV, is the basis for the stock line, and lenders advance up to 90% of it.
Card receivables and any trade debtors can sit in the same borrowing base at up to 90% of eligible receivables, and 95% to 100% in some retail books. Owned stores or a warehouse can be added as a term loan inside the facility at up to 80% of market value. ABL facilities run from £2m to £120m, priced from 2% over Bank Rate on the receivables line, on 3 to 5 year committed terms. Each month, or weekly at peak, you report your stock and the available borrowing updates; cash released as stock sells can be drawn again for the next season's range.
Which stock values best
Current-season, well-ranged stock with a clear resale market values best. Branded goods, staple lines and products with long shelf lives are strong. Highly seasonal fashion, perishables, personalised items and old or heavily marked-down lines are valued more cautiously or excluded. We look at your stock profile on the first call so the facility size we discuss is realistic.
What sits alongside the ABL
Import and trade finance, asset finance and any standalone commercial mortgage are separate facilities, not part of the ABL. They are arranged alongside it, often with the same lender, and the intercreditor terms are agreed up front so each facility does its own job. For retailers below ABL size, a revolving credit facility and a term loan usually do the same work.
Funding overseas buying without supplier deposits
Import and trade finance pays your supplier when the goods are shipped, often by letter of credit or direct payment, at up to 100% of supplier cost, and gives you up to 180 days to repay. In practice that means the stock arrives, sells through, and the cash from those sales repays the line. You stop tying up cash in deposits months before the goods reach you, and suppliers who are paid promptly often offer better prices. Once the stock lands, it can move into the ABL borrowing base.
Funding new stores
A new store is a long-term investment, so it should be funded with long-term money rather than a working capital line. We usually arrange a term loan sized to the fit-out, opening stock and early losses, from 6.5% a year or 2.5% over Bank Rate, at up to 4x EBITDA and on terms of 1 to 10 years, repaid from the store's earnings once it is trading. Up to £2m can be unsecured, and the Growth Guarantee Scheme, up to £2m per business group, can give lenders the comfort to lend where security is limited.
Lenders will want to see your track record of opening stores: how long they take to break even and what mature stores contribute. A clear rollout plan with that evidence is far more fundable than a single big number.
Acquisitions, buyouts and refinancing
We also advise on retail transactions: buying a competitor, acquiring stores or stock out of administration, a management buyout or a recapitalisation that returns cash to shareholders. We run the debt process end to end, from the information memorandum and lender process to term sheets and completion. A stock-rich retailer can often combine ABL with senior or unitranche debt at up to 5x EBITDA, which keeps the equity cheque smaller.
What makes a retail deal fundable
None of this has to be perfect before you speak to us. Part of our job is to get the information into the shape lenders expect, and to present the business in a credit paper that answers their questions before they ask them.
- Monthly management accounts that tie back to the filed accounts
- A stock system that reports by category, location and age
- A cash flow forecast that shows the seasonal peak honestly
- Store-level profitability, with a plan for weaker sites
- Up-to-date suppliers and HMRC