Warehouse Financing - Explained
What is Warehouse Financing?
Written by Jason Gordon
Updated at October 13th, 2021
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What is Warehouse Financing?
Warehouse financing is a form of financing in which manufacturers take loans using their goods or commodities as collateral for the loan. The collateral is held in trust, that is, a third party who is the trustee in the financial arrangement holds the goods on behalf of the lender. In most cases, an agent can be in control of the collateral or the collateral will be kept in warehouses that the lending institution approves. However, as the name implies, collaterals in warehouse financing are kept in a warehouse, these are non-perishable commodities and goods that the manufacturer uses as collateral for the loan taken.
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How Does Warehouse Financing Work?
Shortage of funds to run a business is that every business owner avoid, there are many ways of financing a business, one of which is a loan. Warehouse financing is used by manufacturers to secure loans with favorable loan terms and repayment plan. There are many benefits that borrowers, who are mostly producers and manufacturers can derive from warehouse financing. The major benefit of warehouse financing is the ability of borrowers to use their commodity, raw materials and other goods as collateral for the loan. This type of financing is a secured loan that is cost-effective, unlike other forms of loan. Also, the terms of a warehouse financing are flexible and always favorable to the borrower, small businesses and manufactures leverage on this type of loan.