Management Notes

Reference Notes for Management

Terminal Warehouse Receipt Loans – Inventory Financing | Short Term Financing

Terminal Warehouse Receipt Loans | Inventory Financing | Short Term Financing | Corporate Finance

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. The lender has an added degree of safety or security because the inventory is removed from the borrower’s control.

Here a borrower secures a terminal warehouse receipt loan by storing inventory with a public, or terminal, warehousing company. The warehouse company issues a warehouse receipt, which evidences title to specified goods that are located in the warehouse. The warehouse receipt gives the lender a security interest in the goods, against which a loan can be made to the borrower. Under such an arrangement, the warehouse can release the collateral to the borrower only when authorized to do so by the lender.

Consequently, the lender can maintain strict control over the collateral and will release collateral only when the borrower pays a portion of the loan. For protection, the lender usually requires the borrower to take out an insurance policy with a loss payable clause in favor of the lender.

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