Legal Definitions - field-warehouse financing agreement

A field-warehouse financing agreement is a specialized type of loan contract. It allows a business (the borrower) to obtain financing by using its existing inventory—such as raw materials, goods in production, or finished products—as collateral for a loan. The distinctive feature of this arrangement is that the inventory remains on the borrower's own property, rather than being moved to an independent, off-site warehouse.

Instead, a separate, independent warehousing company establishes a "field warehouse" on the borrower's premises. This third-party company takes physical control and custody of the designated inventory on behalf of the lender. The financing agreement details the terms of the loan, the lender's security interest in the inventory, and the responsibilities of all parties, including how the independent warehouse operator will manage and release the collateral.

Here are some examples to illustrate this concept:

• Manufacturing Company: Imagine a textile manufacturer that needs a significant loan to purchase new machinery. Its most valuable asset is a large stock of raw cotton, dyes, and finished fabrics stored in its factory warehouse. Instead of moving all this inventory to a public warehouse, which would be costly and disruptive, the manufacturer enters into a field-warehouse financing agreement. A third-party warehouse company sets up a controlled area within the manufacturer's existing facility, takes an accurate inventory of the materials, and manages access to them. The loan agreement specifies that this inventory serves as collateral, and the manufacturer can only withdraw materials for production with the warehouse company's approval, which is typically linked to the lender's consent or pre-approved release schedules.

• Agricultural Producer: Consider a large-scale coffee bean exporter that needs working capital to manage its operations between harvests and sales. It has a substantial quantity of processed, bagged coffee beans stored in its own climate-controlled facility. To secure a loan without the expense of transporting the beans to an external warehouse, the exporter uses a field-warehouse financing agreement. An independent warehouse operator establishes a secure, designated section within the exporter's facility, monitors the coffee bean inventory, and ensures that no beans are released for shipment without the lender's authorization, as outlined in the financing agreement.

• Electronics Distributor: An electronics distributor imports high-value computer components and finished products from overseas. To maintain a healthy cash flow for future orders, it seeks a line of credit using its current stock of microchips, circuit boards, and assembled devices as collateral. Through a field-warehouse financing agreement, a specialized warehousing firm sets up a segregated, secure cage within the distributor's existing storage facility. This firm then meticulously tracks the inflow and outflow of the specified electronic inventory, ensuring that the lender's collateral is properly managed and that the distributor only accesses the components according to the terms stipulated in the financing agreement.