Several methods of using inventory to secure short-term loans:

1. Floating Lien Agreement

·      Borrower gives lender a lien or claim against all its inventories

·      However, the control of the inventories is fully with the borrower

·      Not so  popular to the lenders as the control of the inventory are not in their hands

·      Inventories comprises diversified group of relatively inexpensive merchandise.

·      Quantum of borrowing amount therefore is lower like 50% of the book value of the average inventory

2. Chattel Mortgage Agreement

·      Inventory is identified in the agreement

·      Borrower retain title to the inventory but cannot sell the items without lender’s consent

·      Often made against relatively inexpensive automotive, consumer durable and industrial goods that can be identified by serial number

·      Quantum of borrowing amount about 80 % to 100% of the book value of the average inventory.

3     Field Warehouse-financing Agreement

·      Inventories which are collaterized are physically separated from the firm’s other inventories and placed under the control of a third-party field warehousing form.

·      Quantum of borrowing about 75% to 90% of the book value of the average inventory.

·      Note that there will be additional costs like security guards to supervise the inventories in the warehouse.

4.   Terminal Warehouse Agreement

·      Conditions basically the same as field warehouse financing agreement

·      Except that the inventories being collaterized are transported to a public warehouse.

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