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Stock is a significant absorber of cash. Goods often need to be purchased and held in a warehouse for several months pending sale. Stock finance presents a challenge to the financier who has no control over whether, when, to whom and for how much the stock will be sold.
In this chapter, we examine how stock may be financed when this is held against call-off contracts. The credit quality of the borrower and ‘credit gap’ between the amount that the financier would be prepared to lend on a conventional ‘balance sheet’ basis and that required in the proposition is discussed; this determines the extent to which the facility is structured or controlled.