Business Loans against pledge of goods are possible traders (importers/exporters) for their trading activities, to manufacturers and producers for their requirements of raw materials etc and also to enable them to sell their products at better prices. The account is to facilitate the borrower to hold on to the goods for a short period, by creating a pledge in favor of the Bank/Lending company. This is a type of account where the credit for a specified period of time, generally for one year and release of goods are allowed any number of times during the currency of the limit, within the limit/Drawing power. This limit cannot be allowed to be operated by the borrower by issuance of cheques or by deposit of cash and other instruments for collection.
Pledge of goods means bailment of goods as security for payment of debt or performance of a promise. This is a voluntary transfer of possession of goods. Delivery may be either physical or constructive. Pledge is created when the actual possession of goods is transferred to the Bank/Lending company as security or by any other means by which delivery is affected, as in the case of endorsement and delivery of a document of title to the goods.
Loans (cash advances) against goods are allowed on the basis of pledge or hypothecation of goods depending upon the credit worthiness and the requirements of the borrower, keeping in mind that the security by way of pledge, where possible and practical is always preferable to hypothecation.
Loans (cash advances) will not be given against goods which are not the sole property of the borrower or where the borrowers right to sell is restricted.