Hypothecation

In debt financing,we often hear the term “hypothecation of xx”.

Hypothecation simply refers to the pledging of assets as security for the funds borrowed.

A typical example is the bank lending working capital which involves a hypothecation of INVENTORIES and BOOK DEBTS.  In this case,the current assets still remain with the borrower but in case of default,the bank may seek recovery of the loan by instituting a lawsuit to seize the hypothecated assets which can later be sold.

• Explain the terms-Guarantor and Guarantee
• Short Term Financing:Inventory Financing (Part 2)
• Covenants
• Charges,Ranking And Debt to Equity Ratio
• Negative Pledge Clause