Inventory Financing: How to Move from Book Value to Realisable Value - and Maximise Your LTV

Inventory financing does not start with accounting value.
It starts with market value.

That is where many industrial financing discussions go wrong.

Because lenders do not finance what inventory once cost.
They finance what it is actually worth in a real-world recovery scenario.

In the white paper “Industrial Inventory: Unlock Your Idle Capital,” Soka Finance highlights a critical principle: the ability to turn inventory into financing depends not on its historical purchase price, but on its realisable market value.

1. Book value vs. liquidation value: a strategic gap

Book value is an internal accounting reference.
It is useful for your balance sheet.

A lender, however, will usually focus on Net Realisable Value (NRV) — in other words, the amount the inventory could generate in a realistic resale scenario.

That typically means:

Estimated resale price
– transport costs
– storage costs
– selling commissions
= liquidation value

This is the value base that determines how much financing can actually be raised.

Direct implication

Two companies with the same inventory value on paper may receive very different funding outcomes.

Because in inventory financing, value is not what the stock once cost.
It is what the market would still pay for it.

2. Not all inventory is viewed equally by lenders

One of the most important realities in inventory financing is that not all inventory carries the same financing potential.

The white paper distinguishes three main categories:

Raw materials

These are often the most attractive category for lenders.

Why?

Because they typically offer:

• a liquid secondary market,
• known and observable pricing,
• strong standardisation,
• and lower obsolescence risk.

Metals, polymers, and standardised components, for example, are often seen as genuine financeable assets.

Semi-finished goods

These are generally more difficult to finance.

Their value often depends on a production stage that has not yet been completed, which makes resale more uncertain.

As a result, lenders tend to apply significant discounts.

Finished goods

These can sometimes carry strong value — but they also require more caution.

Their financeability often depends on factors such as:

• product positioning,
• obsolescence risk,
• seasonality,
• and dependence on a specific customer base or order book.

A finished goods inventory that appears valuable internally can become commercially illiquid very quickly if market demand weakens.

3. Loan-to-Value (LTV): the key metric that drives financing capacity

The central metric in inventory financing is Loan-to-Value (LTV).

It is typically expressed as:

Financed amount
÷
Liquidation value

According to the white paper, LTV levels can in some cases reach 80% to 90%, depending on the liquidity and quality of the underlying inventory.

But those levels are not achieved automatically.

They depend on a number of critical variables, including:

• inventory quality,
• stock rotation,
• traceability,
• price stability,
• and legal structuring.

A well-segmented, well-documented, and properly presented inventory base can materially improve financing terms.

And on a €10 million facility, even a small increase in LTV can represent hundreds of thousands of euros in additional liquidity.

4. Valuation due diligence: one of the most underestimated stages

This is where many industrial companies leave financing capacity on the table.

Because a simple ERP export is rarely enough.

A serious lender will usually want to assess much more than quantities and accounting values.

They may analyse:

• historical rotation,
• seasonality,
• supplier concentration,
• raw material sensitivity,
• insurance conditions,
• and the overall resilience of the inventory profile.

As explained in the white paper, Soka Finance works with sector specialists to help position and present inventory in a way that makes its quality and financeability clear to the lender.

That means the process is not just about producing a data file.

It is also about building a credible financing case around the asset.

In practice, valuation is not only an analytical exercise.
It is also a strategic persuasion exercise.

5. What this changes for your working capital

For many industrial companies, inventory is one of the largest drivers of Working Capital Requirement (WCR).

And yet, it often remains one of the least actively financed.

Converting 70% to 80% of eligible inventory value into immediate liquidity can help companies:

• reduce pressure on traditional banking lines,
• absorb raw material inflation,
• negotiate larger or earlier procurement volumes,
• and support periods of rapid growth with more confidence.

That is why inventory financing should not be seen as a distress tool.

It is better understood as a proactive working capital management lever.

Used correctly, it gives industrial companies more room to manoeuvre — financially and operationally.

In summary

Moving from book value to realisable value is the first strategic step in successful inventory financing.

It is not just a technical exercise.
It is a full reassessment of your balance sheet through a market and lender lens.

The white paper details the five key stages of this transformation, along with the practical mechanisms already used by manufacturers who have successfully unlocked liquidity from their industrial inventory.

If your business holds significant inventory, the real question is no longer:

“Can I finance it?”

But rather:

“Am I underutilising a strategic asset?”

Want to understand which structure is best suited to your business?

Whether it involves a non-possessory pledge, a possessory security structure, an inventory-backed debt arrangement, or a more bespoke financing setup, the right structure can make a major difference to both funding capacity and operational flexibility.

Our white paper, “Industrial Inventory: Unlock Your Idle Capital,” explains in detail the legal and financial mechanisms that secure inventory financing while preserving your ability to operate and grow.

📥 Download the white paper to discover how to turn inventory into a sustainable lever for liquidity and industrial growth.