Structuring Asset Backed Credit Lines to Fund Inventory Accumulation Cycles
Asset backed credit lines fund inventory accumulation by matching dynamic borrowing caps to appraised liquidation values across peak purchasing build ups.
Free on Board Transit
Meaning
Shipping terms that assign ownership of goods to the buyer at the point of origin establish the moment title transfers during shipping. Inventory in free on board transit represents materials that have left the seller’s dock but have not arrived at the warehouse of the buyer. Financing providers track this status to determine when to include these items in the borrowing base.
Collateral Inclusion
Lenders require specific documentation before recognizing assets that are in free on board transit as eligible collateral. This verification includes bills of lading and proof of transit insurance.
Risk Exposure
Maritime or overland accidents present recovery hurdles for financed items that have not reached their final destination. The buyer holds the risk of loss for items in free on board transit, which demands complete insurance policies to protect the interest of the lender. If a carrier fails, recovering physical items is difficult and costly, which is why lenders limit the advance rate on in-transit assets.
Liquidation Hurdle
Legal rights of stop-in-transit by unpaid suppliers can disrupt the claim of a secured lender on these moving assets. Financing agreements establish strict sub-limits on free on board transit inventory to manage this legal risk. This cap is often limited to a small percentage of the overall inventory borrowing base.