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Essay / Research Paper Abstract
This 3 page paper explains and compares three different types of short term financing; a floating inventory lien, a trust receipt and a warehouse receipt loan. The characteristics of each are discussed along with the relative risks for the lenders. The bibliography cites 2 sources.
Page Count:
3 pages (~225 words per page)
File: TS14_TEshortbor.rtf
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Unformatted sample text from the term paper:
make funds available for short-term use they will assess risk, and as with long term loans, preferred to have some form of collateral to provide them with security if the
borrower defaults. There are three main types of collateral utilized to support short-term borrowing, these are a floating inventory lien, a trust receipt and a warehouse receipt loan. Each have
different characteristics and may be used in different circumstances, by looking at each type of arrangement the characteristics can be identified and compared. A floating lien is relatively self descriptive,
this is a floating lien against the inventory of the company. This arrangement it is the borrowers inventory which is acting as collateral for the loan. With this arrangement, it
potential collateral is all of the inventory, without specifying any individual goods, as such the entire inventory of the organization may turn over several times and the floating lien remain
in place (Davies, 2008). This is a suitable arrangement organization has short-term borrowing needs that are linked to inventory requirements, and as
such it may be suitable for small businesses, or companies that are growing at a rapid rate. However, where short-term borrowing takes place that has a significantly lower value than
the inventory firms may be unwilling to utilize inventory as collateral in this way, presenting an opportunity cost in terms of restricting use of assets. In general terms there will
be the negotiation of a loan to value ratio for the lien agreed between the borrower and lender. As this is not
fixed against specific assets, and is floating, this gives the lender a relatively low level of security compared to other form of collateral, which will be reflected in the interest
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