Loans Against Goods 📦

Banks lend to traders/manufacturers against their Stock/Inventory (Raw material, finished goods).

Modes of Creating Charge 🔒

1. Pledge (Key Loan) 🔑

• Possession: Transferred to Bank.
• Ownership: Remains with Borrower.
• Example: Goods kept in godown, Bank keeps the key. Borrower cannot touch goods without bank's permission.
• Safe: Bank has full control.

2. Hypothecation (Open Loan) 🔓

• Possession: Remains with Borrower.
• Ownership: Remains with Borrower.
• Example: Car Loan, Stock in shop.
• Risk: Borrower might sell goods without telling bank.
• Precaution: Bank does periodic Stock Inspection.

Documents of Title to Goods 📄

Instead of physical goods, banks lend against documents that prove ownership.

1. Bill of Lading: Receipt by ship captain (for sea cargo).
2. Railway Receipt (RR): Receipt by Railways.
3. Warehouse Warrant: Receipt by warehouse keeper.

How it works:

• Borrower endorses Bill of Lading to Bank.
• Bank becomes "Constructive Possessor" of goods.
• Bank releases document only when loan repaid.

Precautions 🛡️

1. Valuation: Verify value of goods (don't rely on invoice).
2. Perishability: Don't lend against vegetables/fruits (they rot!).
3. Insurance: Goods must be insured against fire/theft.
4. Turnover: Ensure goods are moving (not dead stock).

Quiz Time! 🎯

💡 Final Wisdom: "Pledge is 'Lock and Key'. Hypothecation is 'Trust and Verify'. Both fuel the business engine!" 🏭

Next up: Loans Against Real Estate - Mortgages! 🏠