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Simple English definitions for legal terms
commodity loan
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A quick definition of commodity loan:
A commodity loan is when someone borrows money and uses a valuable item, like cotton or wool, as collateral. This means that if they don't pay back the loan, the lender can take the valuable item instead. It's like borrowing money and putting your favorite toy as collateral.A more thorough explanation:
A commodity loan is a type of loan that is secured by a commodity, such as cotton or wool, in the form of a warehouse receipt or other negotiable instrument. This means that the borrower uses the commodity as collateral for the loan.
For example, a farmer may take out a commodity loan using their crop as collateral. The lender will hold onto the warehouse receipt for the crop until the loan is repaid. If the borrower is unable to repay the loan, the lender can sell the commodity to recover their money.
Commodity loans are often used in the agricultural industry, where crops or livestock can be used as collateral. They allow farmers to access financing to purchase supplies or equipment, or to cover other expenses, while using their assets as security.