What Is Warehouse Financing?

Warehouse financing is a form of inventory financing that involves a loan made by a financial institution to a company, manufacturer, or processor. Existing inventory, goods, or 澳洲幸运5官方开奖结果体彩网:commodities are transferred to a warehouse and used as 澳洲幸运5官方开奖结果体彩网:collateral for the loan. Warehouse financing is most often used by smaller privately-owned firms, parti꧋cularly those in commodities-related businesses, that do not have access to ot𒊎her options.

Note that warehouse financing is different from 澳洲幸运5官方开奖结果体彩网:warehouse lending, which&nbꦑsp;🍨is a way for a bank to provide loans without using its own capital.

Understanding Warehouse Financing

Warehouse financing is an option for small- to medium-siz⭕ed retailers and wholesalers.🤪

The collateral (goods, inventory, or commodities) for a warehouse finance loan may be held in public warehouses approved by the lender or in field warehouses located in the borrower's facilities but controlled by an independent 澳洲幸运5官方开奖结果体彩网:third party.

Take the example of a manufacturer of electric car batteries that has used up its entire line of credit and needs another $5 million to expand operations. It asks around and finds a bank willing to offer a loan through warehouse financing. The bank accepts the company's large inventory of unsold car batteries as collateral, and those batteries are transferred to a warehouse controlled by a third party. If the company fails to pay the loan, the bank can begin selling the batteries to cover the loan. Alternatively, the company can repay the loan and begin taking possession of its batteries again.

A financial institution engaged in warehouse financing will usually designate a collateral manager who issues a 澳洲幸运5官方开奖结果体彩网:warehouse receipt to the borrower that certifies the quantity and quality of the goods. It 澳洲幸运5官方开奖结果体彩网:leverages ꦛthe use of raw material as the primary collateral, while additional financing can be synchronized with the build-up 🌸of stock or inventory.

The Benefits of Warehouse Financing

Warehouse financing often enables borrowers to obtain financing on more favorable terms than short-term working capital (NWC) or unsecured loans, while the 澳洲幸运5官方开奖结果体彩网:repayment schedule can be coordinated with the actual usage of inventories ☂or materials.

​Since it is secure lending, warehouse financing is often less expensive than other types of borrowing. The commodity inventory in the warehouse is contractually pledged to the lender so that if the borrower fails to pay, the lender can take the inventory and sell it on the market to recover the loan. This form of lending is often less expensive because the lend🅰er would not be involved in lengthy legal battles to recover the ൩loan as they would if the loan were unsecured.

A commodity company can also improve its 澳洲幸运5官方开奖结果体彩网:credit rating, lower its borrowing costs, an🙈d potentially secure a larger loan when utilizing warehouse financing. ꦬThis offers a business advantage to a similar-sized company without such resources.