Entrepreneurship, Second Edition

11.7. Obtaining Loans against Inventory

An entrepreneur's inventory is an asset that can serve as collateral for a loan, providing needed cash without jeopardizing access to the inventory. There are four basic ways to use inventory as security for a loan, depending on how closely the lender controls the physical inventory:

1. Chattel mortgage, in which specific inventory is used to secure the loan

2. Floating (or blanket) lien, in which the loan is secured by all the borrower's inventory

3. Field warehousing, in which the lender physically separates and guards the pledged inventory right on the borrower's premises

4. Public warehousing, in which the lender transfers the pledged inventory to a separate warehouse.