Inventory Financing | Methods of Inventory Financing | Short Term Financing | Corporate Finance
Inventory financing is the process of obtaining short-term funds using inventories of the firm as collateral. There are mainly three types of inventories. They are finished goods, work-in-process, and raw materials. Finished goods and raw materials are more marketable than work-in-process inventories so, generally, work-in-process inventories are a less popular form of inventory financing.
The amount of loan that can be obtained on the inventories depends on the durability, riskiness, price, and marketability of the inventory. Inventory financing can be done in various ways and modes in different situations and the nature of inventories. Following five methods of inventory financing are the popular form of inventory financing.
Methods of Inventory Financing
A floating lien is a method of obtaining funds by pledging all types of inventories in general without specifying the current assets. Read More
A chattel mortgage is a method of obtaining funds by pledging specifically identified personal properties or inventories. Under the chattel mortgage method, inventories are identified by serial number or by some specific character. Read More
Trust Receipt Loans
Under a trust receipt financing arrangement, the borrower holds in trust for the lender the inventory and the proceeds from its sale. Read More
Field Warehouse Receipt Loans
Under a field, warehouse financing agreement inventories used as collateral are separated from the firm’s other inventories and placed under the control of third-party field warehousing. Read More
Terminal Warehouse Receipt Loans
The terminal warehouse agreement differs from the field warehouse agreement in only one respect. Here the inventories pledged as collateral are transported to a public warehouse that is physically removed from the borrower premises. Read More