The lender makes periodic checks of the borrowers

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Unformatted text preview: nanced. The borrower is free to sell the merchandise but is trusted to remit the amount lent, along with accrued interest, to the lender immediately after the sale. The lender then releases the lien on the item. The lender makes periodic checks of the borrower’s inventory to make sure that the required amount of collateral remains in the hands of the borrower. The interest charge to the borrower is normally 2 percent or more above the prime rate. Trust receipt loans are often made by manufacturers’ wholly owned financing subsidiaries, known as captive finance companies, to their customers. Captive finance companies are especially popular in industries that manufacture consumer durable goods, because they provide the manufacturer with a useful sales tool. For example, General Motors Acceptance Corporation (GMAC), the financing subsidiary of General Motors, grants these types of loans to its dealers. Trust receipt loans are also available through commercial banks and commercial finance companies. Warehouse Receipt Loans warehouse receipt loan A secured short-term loan against inventory under which the lender receives control of the pledged inventory collateral, which is stored by a designated warehousing company on the lender’s behalf. A warehouse receipt loan is an arrangement whereby the lender, who may be a commercial bank or commercial finance company, receives control of the pledged inventory collateral, which is stored by a designated agent on the lender’s behalf. After selecting acceptable collateral, the lender hires a warehousing company to act as its agent and take possession of the inventory. Two types of warehousing arrangements are possible. A terminal warehouse is a central warehouse that is used to store the merchandise of various customers. The lender normally uses such a warehouse when the inventory is easily transported and can be delivered to the warehouse relatively inexpensively. Under a field warehouse arrangement, the lender hires a field warehousing company to set up...
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