What is Warehouse Financing?

Warehouse financing occurs when a lender lends to a borrower who uses inventory as collateral.

How Does Warehouse Financing Work?

Let's assume Company XYZ wants to borrow $2 million to expand its operations. It has used up all of its line of credit with its regular bank, so it asks Bank XYZ for warehouse financing.

Bank XYZ agrees to lend Company XYZ the money, but it requires Company XYZ to use its inventory of widgets as collateral. Accordingly, Company XYZ moves $2 million worth of widgets to a warehouse controlled by the bank. The bank keeps close count of the widgets, and it bases the loan payments on Company XYZ's sale of the widgets over time.

Why Does Warehouse Financing Matter?

Warehouse financing allows companies to borrow money using inventory as collateral, and often on better, more flexible terms than other forms of short-term financing. In many cases, borrowers can keep the collateral inventory in their existing warehouses, and the lenders often require them to separate the collateral inventory from the rest of the inventory with a fence and signage.

Ask an Expert about Warehouse Financing

All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Warehouse Financing.

Be the first to ask a question

If you have a question about Warehouse Financing, then please ask Paul.

Ask a question
Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.