Warehouse financing allows companies to use assets held in a warehouse as collateral for a loan. Banks offer this service, and borrowers can use existing inventory as collateral. The loan terms and assigned value of goods are clearly stated in the contract, which should be reviewed with a lawyer.
Warehouse financing is a form of financing made available to companies using the assets held in a warehouse as collateral. Many commercial banks offer this service or can refer their customers to partner banks with inventory financing options. This service has a number of benefits for banking customers, as well as their banks, and can be offered or discussed as an option when a business seeks finance for its activities.
In warehouse financing, the assets held by the borrower are pledged as collateral. They may be transferred to a bank-owned or third-party facility, or they may be left in place and a third party may be given control of the storage area. In each case, the value of the assets is determined and the bank grants a loan based on that assigned value.
For banks, inventory financing has the obvious advantage of being backed by collateral. If the borrower fails to repay the loan or delays payments, the assets may be seized and sold to recoup the costs of the loan, along with associated fees. When offering this type of loan, banks consider the value of the assets together with their potential on the market for sale. As the company usually holds the assets with a view to selling them, the bank can be confident that there is a market for them and they will be purchased reasonably quickly by interested buyers in the event of an attachment.
Borrowers may find it advantageous to use their existing inventory as collateral. If assets are to be conserved anyway, there are obvious benefits to using them to secure a loan to buy more inventory or cover other business expenses. When the loan is repaid, the collateral can be released, allowing people to sell assets in a timely manner while repaying the loan. This financing option can be useful for a business that is struggling to expand and lacks other forms of collateral, as well as access to capital.
In a warehouse loan agreement, the interest rate and other terms of the loan will be clearly stated, as will the assigned value of the goods. If there are disputes about aspects of the contract, they should be discussed before the contract is signed and finalised. Once approved, the contract is difficult to change, as it requires the consent of both parties. Reviewing the contract with a lawyer can be advisable to catch any surprises or traps structured in the language of the contract.
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