Common Inventory Ineligible Categories:
Below is a comprehensive list of the most common inventory ineligible categories, along with a list of other, perhaps less common inventory ineligible categories.
Please note the categories displayed below represents draft summary content and may be subject to change.
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Excess Inventory
Definition: In asset-based lending, Excess Inventory refers to surplus goods that exceed current demand or typical inventory levels. Such inventory is generally considered ineligible as collateral due to its lower liquidity and higher obsolescence risk.
Obsolete
Definition: In asset-based lending, Obsolete inventory refers to items that are no longer in demand or relevant to current market needs. Such inventory is considered ineligible due to its negligible resale potential and high obsolescence risk.
Slow Moving
Definition: In asset-based lending, Slow Moving inventory refers to goods with low turnover rates. These items are considered ineligible as collateral due to their higher risk of obsolescence and reduced liquidity.
In-Transit Inventory
Definition: In asset-based lending, In-Transit Inventory refers to goods being transported to or from the borrower that are not yet under their physical control. Such inventory is considered ineligible as collateral due to risks related to delivery, condition, and ownership.
Consigned-In or Consigned Out
Definition: In asset-based lending, Consigned-In or Consigned-Out inventory refers to goods that are held on consignment, either by the borrower or with third parties. Since ownership and control of consigned goods are unclear, they are generally considered ineligible as collateral.
Prepaid Inventory (Held/Contra)
Definition: In asset-based lending, Prepaid Inventory refers to goods paid for but not yet delivered. These items are ineligible as collateral because they are not physically available or under the borrower’s control.
Samples
Definition: In asset-based lending, Samples refer to inventory items used for promotional or testing purposes. These items are ineligible as collateral because they lack resale value and are often given away.
Supplies
Definition: In asset-based lending, Supplies refer to items used in daily operations or production that are not intended for resale. These items are ineligible as collateral due to their consumable nature and lack of marketability.
Cost Test Variance
Definition: In asset-based lending, Test Cost Variance refers to differences between actual and estimated testing costs allocated to inventory. These variances are ineligible as collateral because they are accounting entries and not tangible assets.
Landlord Waivers Lacking
Definition: In asset-based lending, Landlord Waivers Lacking refers to situations where the borrower does not have agreements with landlords granting lenders access to inventory stored in rented locations. Without these waivers, inventory may not be accessible in default scenarios, making it ineligible as collateral.
Other Inventory Ineligible Categories:
[This section currently under development]
Below is a comprehensive list of other inventory ineligible categories.
Please note the content is in draft form right now and may be subject to updates.
Accessories
Definition: In asset-based lending, Accessories refer to supplemental or non-essential inventory items that are often bundled with primary products but do not independently hold significant resale value. These items may include add-ons, decorative elements, or minor functional components that enhance the main product but are difficult to liquidate separately. Due to their lower marketability and independent resale potential, accessories are typically considered ineligible as collateral.
Addbacks (not shipped / held)
Definition: In asset-based lending, Addbacks refer to inventory items that have been returned to stock after being held or designated for shipment but were not ultimately shipped to customers. These items are considered ineligible for collateral due to the uncertainty of their condition, demand, or potential defects.
Bottom of Piles
Definition: In asset-based lending, Bottom of Piles refers to inventory that is physically stored at the bottom of stacks or piles, often left untouched for extended periods. These items are typically at higher risk of obsolescence, damage, or spoilage due to their prolonged storage and limited accessibility.
Byproducts (scraps)
Definition: In asset-based lending, Byproducts (scraps) refer to residual materials or waste generated during the manufacturing process. These materials typically have limited market value and liquidity compared to finished goods, making them ineligible as collateral.
Chemicals
Definition: In asset-based lending, Chemicals refer to raw materials, compounds, or substances used in manufacturing processes or as products themselves. Chemicals are often deemed ineligible as collateral due to their volatility, storage requirements, and limited resale market.
Clearance Items
Definition: In asset-based lending, Clearance Items refer to inventory that is heavily discounted or marked for quick sale to clear out excess or obsolete stock. These items typically have a lower market value and are considered ineligible as collateral due to their reduced liquidity.
Components
Definition: In asset-based lending, Components refer to parts or subassemblies used in the manufacturing process to produce finished goods. These items may be deemed ineligible as collateral due to their incomplete status and limited standalone resale value.
Contract Inventories
Definition: In asset-based lending, Contract Inventories refer to inventory items produced or procured for specific contractual obligations. These items are often ineligible as collateral because they are tied to particular contracts, limiting their general marketability and resale potential.
Cores in Inventory
Definition: In asset-based lending, Cores in Inventory refer to used or remanufactured parts retained for recycling, refurbishment, or resale. These items are generally considered ineligible as collateral due to their uncertain value and limited liquidity.
Crop Damage Reserves
Definition: In asset-based lending, Crop Damage Reserves refer to provisions for potential losses in agricultural inventory due to environmental factors, pests, or spoilage. These reserves are not eligible as collateral because they represent potential liabilities rather than marketable assets.
Custom Made / Job Shop
Definition: In asset-based lending, Custom Made / Job Shop inventory refers to goods that are designed and manufactured specifically to meet unique customer specifications. These items are considered ineligible as collateral because they have limited resale potential outside of the original customer agreement.
Damaged
Definition: In asset-based lending, Damaged inventory refers to goods that have been physically impaired, reducing their usability, marketability, or resale value. Such inventory is generally considered ineligible as collateral due to its diminished quality and recoverable value.
Demos
Definition: In asset-based lending, Demos refer to inventory items used for demonstration or promotional purposes. These items are considered ineligible as collateral because they are not available for sale and often show signs of wear or use.
Deposits for Inventory
Definition: In asset-based lending, Deposits for Inventory refer to prepayments made to suppliers for inventory that has not yet been received. These deposits are considered ineligible as collateral because they do not represent tangible goods that can be liquidated.
Depreciation / Amortization
Definition: In asset-based lending, Depreciation / Amortization refers to the accounting adjustments that reduce the book value of long-term assets over time. These non-cash expenses are ineligible as collateral because they do not represent tangible or liquid inventory.
Direct Shipment
Definition: In asset-based lending, Direct Shipment refers to inventory that is shipped directly from the supplier to the customer without passing through the borrower’s possession. Such inventory is ineligible as collateral because it is not under the borrower’s control or available for liquidation.
Discontinued Items
Definition: In asset-based lending, Discontinued Items refer to inventory that is no longer in production or actively sold. These items are ineligible as collateral because they face high obsolescence risk and limited marketability.
Displays
Definition: In asset-based lending, Displays refer to inventory items used to showcase products in stores or marketing campaigns. These items are ineligible as collateral because they are not available for sale and often show signs of wear.
Dmminimis Locations
Definition: In asset-based lending, Dmminimis Locations refer to locations that hold inventory but represent a very small portion of the total collateral value. These inventories are often excluded due to the cost of verification outweighing their contribution to the borrowing base.
Duty / Freight / Customs
Definition: In asset-based lending, Duty / Freight / Customs refers to the costs incurred for transporting, importing, or exporting inventory. These amounts are ineligible as collateral because they do not represent tangible assets and are tied to expenses rather than inventory value.
Equipment
Definition: In asset-based lending, Equipment refers to machinery, tools, or devices used in the production process. While valuable, equipment is typically excluded from inventory collateral because it is not intended for resale and has limited liquidity.
Favorable Variances
Definition: In asset-based lending, Favorable Variances refer to cost reductions or efficiency gains reflected in inventory valuation. These variances are considered ineligible as collateral because they do not represent tangible inventory or marketable assets.
Foreign / International Location
Definition: In asset-based lending, Foreign or International Location refers to inventory held outside the country where the loan is originated. This inventory is generally ineligible as collateral due to jurisdictional, logistical, and legal complexities.
Freight
Definition: In asset-based lending, Freight refers to the costs of transporting inventory. These costs are considered ineligible as collateral because they do not represent tangible assets and are tied to expenses rather than inventory value.
Fuels (gasoline, oil, diesel)
Definition: In asset-based lending, Fuels refer to consumable energy resources such as gasoline, oil, and diesel. These items are typically considered ineligible as collateral due to their volatility, storage requirements, and rapid consumption.
G/L Adjustments
Definition: In asset-based lending, G/L Adjustments refer to journal entries made to correct or modify inventory balances in the general ledger. These adjustments are ineligible as collateral because they do not represent physical inventory.
GL Reserves
Definition: In asset-based lending, GL Reserves refer to provisions or allowances made in the general ledger to account for potential inventory losses or adjustments. These reserves are ineligible as collateral because they do not represent tangible assets.
Government Inventory
Definition: In asset-based lending, Government Inventory refers to goods produced or held specifically for government contracts. These items are considered ineligible as collateral due to restrictions on resale and contractual limitations.
Gross Profit Method Inventory
Definition: In asset-based lending, Gross Profit Method Inventory refers to inventory valuations estimated using gross profit margins rather than actual counts or costs. This method is ineligible as collateral because it is an approximation and lacks verifiable support.
Guarantee
Definition: In asset-based lending, Guarantee refers to inventory backed by a third-party assurance or promise. Such inventory is considered ineligible as collateral due to reliance on external parties and the potential difficulty in enforcing guarantees.
Hedge Reserve
Definition: In asset-based lending, Hedge Reserve refers to financial provisions or adjustments made to account for potential price volatility in inventory commodities. These reserves are ineligible as collateral because they represent financial instruments, not tangible inventory.
Hot Goods (Wage Violations)
Definition: In asset-based lending, Hot Goods refer to inventory produced in violation of labor laws, such as underpayment of wages. These items are considered ineligible as collateral due to legal and ethical restrictions on their sale or use.
Indirect Costs
Definition: In asset-based lending, Indirect Costs refer to expenses allocated to inventory that are not directly tied to its production, such as administrative or overhead costs. These costs are considered ineligible as collateral because they do not represent tangible inventory.
Inks / Solvents / Resins
Definition: In asset-based lending, Inks, Solvents, and Resins refer to consumable materials used in manufacturing or printing processes. These items are often considered ineligible as collateral due to their volatile nature and rapid consumption.
Inspection Area
Definition: In asset-based lending, Inspection Area refers to inventory held in a designated area for quality control or inspection before being made available for sale. These items are ineligible as collateral until they pass inspection and become saleable.
License Fee Reserves
Definition: In asset-based lending, License Fee Reserves refer to amounts set aside to cover the cost of licensing fees associated with inventory. These reserves are ineligible as collateral because they represent expenses rather than tangible goods.
Lien of Vendors (PMSI)
Definition: In asset-based lending, Lien of Vendors refers to inventory subject to a Purchase Money Security Interest (PMSI). Such inventory is ineligible as collateral because another creditor holds priority rights over it.
Literature
Definition: In asset-based lending, Literature refers to marketing materials, brochures, or other non-saleable items used for promotional purposes. These items are ineligible as collateral because they lack resale value and are not inventory for sale.
Lower of Cost or Market Reserves
Definition: In asset-based lending, Lower of Cost or Market Reserves refer to accounting adjustments made when inventory’s market value falls below its cost. These reserves are ineligible as collateral because they represent reductions, not tangible assets.
Molds / Tools / Dies
Definition: In asset-based lending, Molds, Tools, and Dies refer to manufacturing equipment used to produce goods. These items are typically considered ineligible as inventory collateral due to their specialized nature and limited resale market.
No Perpetual
Definition: In asset-based lending, No Perpetual refers to inventory systems where stock levels are not continuously tracked in real-time. Inventory in such systems is ineligible as collateral due to unreliable records and valuation issues.
Non-Moving
Definition: In asset-based lending, Non-Moving inventory refers to stock that has remained unsold or unused for an extended period. Such inventory is considered ineligible due to its higher risk of obsolescence and lower marketability.
Odd-Lot and Small Quantities
Definition: In asset-based lending, Odd-Lot and Small Quantities refer to inventory items that exist in irregular or minimal amounts. These items are considered ineligible as collateral due to their limited marketability and inefficient resale potential.
Off-Site Inventory
Definition: In asset-based lending, Off-Site Inventory refers to stock stored at locations not owned or controlled by the borrower, such as third-party warehouses or customer sites. This inventory is considered ineligible as collateral due to access and ownership risks.
Outside Processor
Definition: In asset-based lending, Outside Processor inventory refers to goods temporarily transferred to third-party vendors for processing or finishing. This inventory is ineligible as collateral due to lack of control and verification challenges.
Overhead
Definition: In asset-based lending, Overhead refers to indirect costs allocated to inventory, such as utilities, administrative expenses, or factory upkeep. These costs are considered ineligible as collateral because they do not represent tangible goods.
Overruns
Definition: In asset-based lending, Overruns refer to surplus inventory produced beyond the original order quantity. These items are considered ineligible as collateral due to their limited marketability and demand.
PACA Lien
Definition: In asset-based lending, PACA Lien refers to a statutory trust created under the Perishable Agricultural Commodities Act (PACA) that grants unpaid produce sellers a priority claim over assets. Inventory subject to PACA liens is considered ineligible as collateral due to the priority of these claims.
PACA Reserve
Definition: In asset-based lending, PACA Reserve refers to funds set aside to satisfy obligations under the Perishable Agricultural Commodities Act (PACA). These reserves are considered ineligible as collateral because they represent liabilities, not tangible assets.
Packing
Definition: In asset-based lending, Packing refers to materials used to package and prepare goods for shipment. These items are ineligible as collateral because they are consumables and not marketable inventory.
Pallets
Definition: In asset-based lending, Pallets refer to wooden or plastic platforms used for storing or transporting goods. Pallets are considered ineligible as collateral due to their low market value and consumable nature.
Parts
Definition: In asset-based lending, Parts refer to individual components used in assembling or repairing finished goods. These items may be considered ineligible as collateral due to their incomplete nature and dependency on demand for specific products.
Perishable
Definition: In asset-based lending, Perishable inventory refers to goods that have a limited shelf life, such as food, flowers, or pharmaceuticals. These items are ineligible as collateral due to their high risk of spoilage and limited marketability after expiration.
PMSI (Purchase Money Security Interest)
Definition: In asset-based lending, PMSI (Purchase Money Security Interest) refers to inventory secured by a vendor or supplier who holds priority rights to the collateral. These items are ineligible due to existing superior claims.
Price Variance
Definition: In asset-based lending, Price Variance refers to differences between expected and actual inventory costs. These variances are considered ineligible as collateral because they are accounting adjustments rather than tangible inventory.
Priority Lien
Definition: In asset-based lending, Priority Lien refers to inventory subject to claims by other creditors with higher-ranking security interests. These items are ineligible as collateral because the lender lacks primary rights to recover them.
Private Label
Definition: In asset-based lending, Private Label inventory refers to goods produced under a specific brand or customer label. These items are ineligible as collateral because they are tied to proprietary agreements and have limited resale potential.
Promotional Items
Definition: In asset-based lending, Promotional Items refer to goods used for marketing campaigns, such as giveaways or branded merchandise. These items are ineligible as collateral due to their lack of resale value and consumable nature.
Purchase Price / Profit Protection
Definition: In asset-based lending, Purchase Price / Profit Protection refers to provisions or reserves for ensuring profit margins. These adjustments are ineligible as collateral because they do not represent physical inventory.
Refined or Semi-Processed Products
Definition: In asset-based lending, Refined or Semi-Processed Products refer to inventory in intermediate stages of production. These items are ineligible due to their incomplete state and limited resale potential.
Regulated Items
Definition: In asset-based lending, Regulated Items refer to inventory subject to government oversight or compliance requirements, such as pharmaceuticals or hazardous materials. These items are ineligible as collateral due to legal and regulatory risks.
Replacement Parts
Definition: In asset-based lending, Replacement Parts refer to components or parts used to repair or maintain equipment. These items are often considered ineligible as collateral due to their limited resale potential and dependency on specific equipment.
Retail / Outlet Inventory
Definition: In asset-based lending, Retail / Outlet Inventory refers to goods held specifically for sale at retail or outlet stores. These items are often considered ineligible as collateral due to their lower margins and higher markdown risk.
Returns
Definition: In asset-based lending, Returns refer to inventory items returned by customers. These items are often deemed ineligible as collateral due to condition uncertainty and diminished resale value.
Revenue Reconciliation (cutoff)
Definition: In asset-based lending, Revenue Reconciliation (cutoff) refers to adjustments made to reconcile revenue timing discrepancies. These adjustments are ineligible as collateral because they do not represent physical inventory.
Rework / Off Quality
Definition: In asset-based lending, Rework or Off Quality inventory refers to goods that do not meet quality standards and require reprocessing. These items are considered ineligible as collateral due to their diminished value and rework costs.
Salesperson Held (demos / samples)
Definition: In asset-based lending, Salesperson Held inventory refers to goods such as demos or samples that are held by sales representatives. These items are considered ineligible as collateral due to lack of control and reduced marketability.
Scrap
Definition: In asset-based lending, Scrap refers to waste materials or byproducts generated during manufacturing. These items are ineligible as collateral due to their low market value and limited liquidity.
Seconds / B-Stock
Definition: In asset-based lending, Seconds or B-Stock refers to goods that are second-grade or contain minor defects. These items are considered ineligible as collateral due to their lower quality and diminished resale value.
Semi-Processed Items
Definition: In asset-based lending, Semi-Processed Items refer to inventory that is partially manufactured and not yet finished. These items are considered ineligible as collateral due to their incomplete nature and dependency on further processing.
Shrinkage Reserve
Definition: In asset-based lending, Shrinkage Reserve refers to a financial allowance for expected inventory losses due to theft, damage, or misplacement. These reserves are ineligible as collateral because they do not represent physical inventory.
Software
Definition: In asset-based lending, Software refers to digital programs or licenses associated with inventory. These items are considered ineligible as collateral because they are intangible and cannot be liquidated like physical inventory.
Standard Cost Variance (Favorable)
Definition: In asset-based lending, Standard Cost Variance (Favorable) refers to cost savings or efficiencies reflected in inventory valuation. These variances are considered ineligible as collateral because they are accounting adjustments, not physical inventory.
Sub-Assemblies
Definition: In asset-based lending, Sub-Assemblies refer to partially completed products used as components in finished goods. These items are ineligible as collateral due to their incomplete state and limited standalone marketability.
Test Count Variances
Definition: In asset-based lending, Test Count Variances refer to discrepancies identified during inventory audits or cycle counts. These variances are considered ineligible as collateral because they highlight potential errors or unverified inventory.
Tolling
Definition: In asset-based lending, Tolling refers to inventory held by third parties for processing or manufacturing under contract. This inventory is ineligible as collateral due to lack of control and verification challenges.
Trade-In Allowance
Definition: In asset-based lending, Trade-In Allowance refers to the value attributed to inventory that is expected to be traded in as part of a sales agreement. These allowances are ineligible as collateral because they represent future transactions, not tangible assets.
UCC Filing Lacking
Definition: In asset-based lending, UCC Filing Lacking refers to inventory not covered under a properly filed Uniform Commercial Code (UCC) financing statement. Such inventory is considered ineligible as collateral because the lender cannot establish a perfected security interest.
Underinsured / Uninsured Inventory
Definition: In asset-based lending, Underinsured or Uninsured Inventory refers to stock that is inadequately covered or not covered at all by insurance policies. These items are considered ineligible due to increased risk of loss.
Uniforms
Definition: In asset-based lending, Uniforms refer to clothing items provided to employees for work purposes. These items are considered ineligible as collateral because they are consumable and not intended for resale.
Vendor Discounts Payable
Definition: In asset-based lending, Vendor Discounts Payable refer to anticipated discounts offered by vendors for early payment. These are considered ineligible as collateral because they are financial adjustments, not tangible inventory.
Vendor Rebates Receivable
Definition: In asset-based lending, Vendor Rebates Receivable refers to amounts owed to the borrower by vendors as part of rebate agreements. These are ineligible as collateral because they are financial receivables, not physical inventory.
Warehouse Receipts
Definition: In asset-based lending, Warehouse Receipts refer to documents issued by warehouses acknowledging the receipt of goods. These are ineligible as collateral because they represent documentation, not tangible inventory.
Warranty Inventory
Definition: In asset-based lending, Warranty Inventory refers to goods set aside to fulfill warranty claims. These items are considered ineligible as collateral because they are not intended for sale and are tied to obligations.
Work in Process
Definition: In asset-based lending, Work in Process (WIP) refers to inventory in the intermediate stages of production. These items are considered ineligible as collateral due to their incomplete state and limited marketability.
Write-Down Reserves
Definition: In asset-based lending, Write-Down Reserves refer to accounting adjustments made to reduce inventory value due to obsolescence, damage, or market changes. These are ineligible as collateral because they are financial provisions, not tangible goods.