Introduction to Finance

blanket inventory 
lien
,
 
or a claim against inventory when individual items are indistinguishable, as may be the 
case with grain or with clothing items. For such loans, a borrower may receive only 60 to 
80 percent of the inventory’s value in a loan. A manufacturer’s work-in-process inventory may 
receive only 20 to 30 percent of its value.
In other cases, when goods can be identifi ed, a 
trust receipt
may be used. Money is bor-
rowed against specifi c items in inventory. This method of fi nancing, sometimes called fl oor 
plan fi nancing, is used by car dealerships and appliance stores where inventory items fi nanced 
by trust receipts can be identifi ed by serial number. Under a trust receipt arrangement, the 
bank retains ownership of the goods until they are sold in the regular course of business. 
Audits are a matter of checking serial numbers of inventory items to determine if items held 
against a trust receipt have been sold.
In some cases, when inventory is used as collateral, the bank may insist the inventory be 
placed in a bonded and licensed warehouse. The 
warehouse receipt
issued by the warehouse 
is turned over to the bank, which holds it until the loan is repaid.
For a business to deliver large, bulky items of inventory to a warehouse for storage can 
be inconvenient. Using a 
fi eld warehouse
solves this problem.
 
A fi eld warehousing enterprise 
has the power to establish a fi eld warehouse on the grounds of the borrowing business estab-
lishment. Field warehouses diff er from the typical public warehouse in that they serve a single 
customer on whose property the fi eld warehouse is established and they exist only until the 
loan is repaid.
In setting up a fi eld warehouse, the warehouse operator usually must obtain a lease on that 
portion of the property to be used for warehousing purposes. Then he or she must establish 
fences, barriers, walks, and other postings to indicate clear possession of the property. This is 
done to avoid accidental or deliberate removal of stored items during business operations. A 
guard may be posted to check on the safety of the warehoused goods or a room may be sealed 
and the seal inspected periodically to ensure the company is honoring its agreement.
There must be a complete statement of the commodities or items to be warehoused, and 
agreements must be made about the property’s maintenance, proper fi re precautions, insur-
ance, and other necessary physical requirements. Under certain circumstances, the ware-
house operator is authorized to release some of goods by the day, week, or month to make a 
rotation of merchandise possible. Under this arrangement, physical inventories must be taken 
occasionally.
Field warehouses are in operation throughout the United States but are concentrated in the 
Central and Pacifi c Coast regions. Canned goods, miscellaneous groceries, lumber, timber, and 
building supplies fi ll about two-fi fths of all fi eld warehouses in this country. Those banks that 
make loans involving commodities will generally accept fi eld warehouse receipts as collateral.
Inventory loans are somewhat more expensive than unsecured loans to business borrow-
ers. The higher cost is due in part to the cost of warehousing operations and because the 
borrower’s credit rating may be low. Bank interest rates for warehouse loans ordinarily are 
somewhat higher than for unsecured loans.
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In addition, a warehouse fee of 1 to 2 percent of 
the loan, depending on size and other factors, must be paid.
Technology can assist the valuing of inventory, especially if the inventory is equipment.
20
Digital writing and recording devices, such as digital cameras, allow items to be photographed