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DEFINITION

A form of financing pertaining specifically to inventory. A lender will purchase the inventory from the borrower and as the inventory sells, the borrower will repay the debt. It is essential that the creditworthiness of both parties is established and that a procedure for if the inventory does not sell is in place before the lending takes place.

INVESTOPEDIA EXPLAINS

This type of financing began in the automobile industry as the purchase price for vehicles was high and standard financing was hard to obtain. Its popularity spread to home appliances and finally to large-scale home electronics such as personal computers.


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