Warehouse financing is a form of inventory financing in which loans are made to manufacturers and processors on the basis of goods or commodities held in trust as collateral for the loans. The goods may be held in public warehouses approved by the lender or may be held in field warehouses located in the borrower’s facilities but controlled by an independent third party. A financial institution engaged in warehouse financing will usually designate a collateral manager who issues a warehouse receipt to the borrower that certifies the quantity and quality of the stored goods or commodities.
Warehouse financing offers a number of benefits to the borrower. It leverages the use of the raw material as the primary collateral, while additional financing can be synchronized with the build-up of the stock. Warehouse financing also enables borrowers to obtain financing on more favorable terms than short-term working capital or unsecured loans, while the repayment schedule can be coordinated with the actual usage of raw material.