Funding stock with a second mortgage: seasonal builds and bulk buys

Stock ties up cash. For retailers, wholesalers, importers and many trades, there are moments when a large purchase makes good sense: building up before the busy season, taking advantage of a supplier’s bulk discount, or securing scarce product before prices rise. When the business account can’t stretch that far, property equity is one option.

Whether it’s a good one depends on the shape of the need and how reliably the stock will turn back into cash.

Is this a one-off buy or a recurring need?

This is the deciding question.

Pattern	Better suited to
One large seasonal build each year	Possibly a second mortgage, repaid after the season
A one-off bulk buy at a discount	Possibly a second mortgage, repaid as stock sells
Regular monthly purchasing	Line of credit or trade finance
Steadily growing stock levels	A longer-term working capital facility

A lump sum against property suits a defined, one-off purchase with a defined end. For needs that come round every month, see our comparison of a line of credit and a second mortgage.

Will the stock sell, and when?

The exit for a stock loan is usually the stock itself. That makes sell-through the critical assumption. Before borrowing, look at:

• Last season’s sell-through for the same or similar lines.
• How much discounting was needed to clear the tail.
• Shelf life or fashion risk. Perishables, technology and seasonal fashion lose value quickly.
• Concentration. Is most of the stock one product line or a spread?

If you’re confident most of it will sell within the season at a healthy margin, the exit is real. If you’re hoping it will, keep the amount smaller.

business.gov.au’s cash flow guidance encourages keeping stock levels lean and aligned with customer demand. That’s good advice even when you are funding a deliberate build-up: buy for the demand you can evidence.

Is the bulk discount worth the borrowing?

A supplier offers a meaningful discount if you take a full container rather than monthly orders. Is it worth borrowing for? Compare:

1. The saving from the discount.
2. The full cost of borrowing for the realistic time the stock takes to sell, including fees.
3. Extra costs of holding more stock: storage, insurance, handling.
4. The risk that some stock doesn’t sell at full margin.

If the saving comfortably exceeds the other three, the case is strong. If it’s marginal, the risk to your property isn’t justified. We don’t publish rates, but a specialist can give you real pricing to plug in once they understand your situation. You can start that conversation with no credit check.

How should you size the loan?

• Borrow for the stock you’re confident will sell, not the maximum the supplier will ship.
• Don’t add a “while we’re at it” buffer for unrelated costs.
• Leave a comfortable equity cushion on the property.
• Check the equity decision helper to see the cushion at different amounts.

Can suppliers reduce what you need?

Before borrowing against property, ask suppliers about:

• Longer payment terms for the seasonal order.
• Staged deliveries, paid as each arrives.
• Consignment, where you pay as you sell.
• Deposits rather than full payment upfront.

Any of these can shrink the amount you need, and some may remove the need for a loan altogether. See funding from cash flow for more levers.

What does a sensible stock exit look like?

For a seasonal build, the exit is usually the season’s sales, with repayment shortly after the peak. Make it robust:

• Date it after the peak, with a margin for slower-than-expected weeks.
• Plan for the tail. How will you clear what’s left?
• Have a fallback. If sales fall short, what else could repay the loan?

See building your exit plan.

An illustrative example

A garden supplies business turns over most of its revenue between September and January. Each winter it needs to buy heavily for spring. This year a key supplier offers a significant discount for a full annual order paid upfront, about $180,000. Last year’s records show 90% of similar stock sold by January.

The owners borrow $150,000 against an investment property with a comfortable cushion, covering most of the order, with the rest from cash. The exit is spring and summer sales, with repayment planned for February and a fallback of a smaller clearance sale plus the business’s line of credit. Illustrative only.

How do you plan for stock that doesn’t sell?

Even good buyers end up with slow lines. Plan for them before you borrow:

• Set a clearance date for anything unsold, and a discount you’re willing to accept.
• Check whether suppliers will take back unopened stock or credit it against future orders.
• Know your margin at clearance prices. If clearing at a discount still covers cost, the risk is manageable.
• Keep the loan exit separate from clearance. Ideally, the main sell-through repays the loan, and clearance is a buffer.

If clearing slow stock would leave a gap the business can’t cover, the order may be too large for a loan secured on property.

Get the stock decision checked

If you’re planning a big stock purchase, send a short enquiry with the amount, what the stock is, when it typically sells and the property you’d use. One specialist will tell you whether a second mortgage, a revolving facility or supplier terms would serve you best. There’s no credit check when you enquire and your details aren’t passed around. Accurate sell-through history makes the answer far more useful.

Talk through funding my stock →