In-Transit Inventory in Asset-Based Lending: When Goods on the Water Become Eligible Collateral

For an importer, the most frustrating gap in an asset-based facility is often the inventory that is already paid for but not yet on the shelf. You have wired your overseas supplier, the goods have left the foreign port, and a container of saleable merchandise is sitting on a ship in the middle of the ocean — but for borrowing-base purposes that value frequently counts for nothing. In-transit inventory in asset-based lending is excluded by default in most facilities, and for businesses that source heavily offshore that exclusion can lock up a large slice of working capital for weeks at a time.

It does not have to be all-or-nothing. With the right documents of title, lender control, and cargo insurance, many ABL lenders will make a defined portion of in-transit goods eligible, often through a dedicated sublimit. This guide explains why in-transit inventory is hard collateral, what lenders require before advancing against it, how documents of title and control work, and how an importer can prepare to unlock availability. It is educational and commercial in nature; it is not legal, tax, or investment advice.

Why in-transit inventory is excluded by default

An asset-based revolver advances against the liquidation value of collateral the lender can identify, control, and reach. In-transit inventory fails several of those tests while it is moving:

• Location and control. The goods are not in a location the lender can access or take possession of. They are on a vessel, in a foreign port, or in the hands of a carrier or freight forwarder.
• Perfection and jurisdiction. Goods crossing international borders raise questions about where the lender's lien is perfected and whether it would be recognized if something went wrong in transit.
• Title timing. Depending on the shipping terms, the borrower may not even own the goods yet — title can pass at the foreign port, on loading, or on delivery, and the lender's collateral interest can only attach to what the borrower actually owns.
• Loss and casualty risk. Cargo can be damaged, lost, jettisoned, or held up at customs; without insurance naming the lender, a casualty in transit could wipe out the collateral with no recovery.

Because of these issues, the standard treatment is to list in-transit inventory as ineligible until it lands at a domestic location the lender controls. The general rules for what makes any inventory eligible — and what knocks it out — are laid out in our guide to inventory eligibility in asset-based lending. In-transit is one of the classic default exclusions discussed there; this post is about the conditions under which lenders relax it.

Documents of title: the key that unlocks eligibility

The single most important factor in making in-transit goods borrowable is whether the lender can obtain control through a document of title — typically a bill of lading. Not all bills of lading are equal:

• A negotiable (order) bill of lading is a document of title: whoever holds the properly endorsed original controls the goods and can take delivery. When the original negotiable bill is consigned or endorsed to the lender (or to its order), the lender has a meaningful grip on the collateral even while it is on the water.
• A straight (non-negotiable) bill of lading simply names a consignee and is not a document of title in the same way; it gives the lender far less control, because the carrier delivers to the named party regardless of who holds the paper.
• Electronic and telex-release arrangements are increasingly common and can work, but the lender will want the control mechanics documented so it can establish its position if needed.

Where goods are imported under a commercial letter of credit, the L/C documentary package — the bill of lading, commercial invoice, packing list, and certificate of origin — naturally puts documents of title into the banking chain, which is one reason L/C-financed imports are sometimes easier to bring into the in-transit sublimit. If your facility uses an L/C sublimit to fund supplier purchases, the mechanics in our guide to the ABL letter-of-credit sublimit connect directly to how those goods can transition from L/C to in-transit to landed eligible inventory.

What lenders require before advancing against in-transit goods

When a lender is willing to give credit for in-transit inventory, it typically conditions eligibility on a stack of protections:

• Documents of title in the lender's control — negotiable bills of lading consigned or endorsed to the lender or its agent, so the lender can direct the goods if it has to.
• Marine cargo insurance naming the lender as loss payee — covering the goods door-to-door against loss and casualty in transit, with the lender protected if the cargo never arrives.
• An in-transit sublimit and cap — a dollar ceiling and often a percentage limit on how much in-transit can count, so the exposure to goods the lender can't physically reach stays bounded.
• A lower advance rate than landed inventory, reflecting the added risk; in-transit goods generally carry a more conservative rate (and are still measured against NOLV, not cost).
• Defined origin and transit parameters — sometimes limited to goods shipped from approved countries, by ocean freight, with a maximum transit window.
• Freight forwarder / customs broker arrangements — acknowledgments from the parties handling the goods so the lender's interest is recognized through the logistics chain, conceptually similar to the bailee arrangements covered in our landlord and bailee waivers guide.

Foreign vs. domestic in-transit

Lenders distinguish between goods in transit internationally (on the water from an offshore supplier, pre-customs) and goods in transit domestically (already landed and cleared, moving between a US port or DC and another company location). Domestic in-transit is generally an easier ask: the goods are in the country, the lien is cleanly perfected under domestic law, and the transit window is short. International in-transit is the harder and more valuable case, because that is where importers have the most capital tied up and where the documents-of-title and insurance requirements really matter. Cross-border collateral questions — perfection, jurisdiction, and currency — overlap with the issues in our cross-border ABL guide, and importers should expect the in-transit discussion to sit alongside those.

How in-transit fits the borrowing base and the appraisal

Even when in-transit goods are made eligible, they are valued the same disciplined way as the rest of the inventory pool: at Net Orderly Liquidation Value, not cost, with the advance rate applied to that NOLV. The appraiser's view of what the merchandise would recover in an orderly liquidation still governs, and the in-transit sublimit and lower advance rate sit on top of that. For how those appraisals are built and why NOLV — not invoice cost — drives the number, see our guide to inventory NOLV appraisals. Lenders may also hold a reserve against in-transit balances on top of the sublimit; the general mechanics of how reserves are sized and negotiated are covered in ABL borrowing base reserves.

Why this matters most for importers

The borrowers who feel the in-transit gap most acutely are importers, wholesalers, and distributors that source from overseas, where six to eight weeks of ocean transit can mean a large, permanent slug of paid-for inventory sitting in an ineligible bucket at any given moment. For these businesses, negotiating an in-transit sublimit can be one of the highest-leverage availability improvements in the whole facility. The broader two-pool AR-plus-inventory structure these companies use is covered in our guide to ABL for distributors, wholesalers, and importers, and in-transit eligibility is often the single most contested line item in that negotiation.

A preparation checklist for unlocking in-transit eligibility

1. Quantify the in-transit pool. Show the lender how much inventory is on the water at any given time and how long the average transit window runs — the size of the prize justifies the documentation work.
2. Use negotiable documents of title. Arrange for negotiable bills of lading that can be consigned or endorsed to the lender rather than straight bills that give no control.
3. Put marine cargo insurance in place with the lender as loss payee. Door-to-door coverage that protects against casualty in transit is non-negotiable for most lenders.
4. Map your logistics chain. Identify freight forwarders and customs brokers and be ready to get acknowledgments recognizing the lender's interest.
5. Clarify your shipping terms and title passage. Know when title passes under your purchase terms so the lender can confirm the borrower actually owns the goods in transit.
6. Propose a sensible sublimit. Come to the table with a proposed in-transit cap, advance rate, and approved-origin parameters rather than asking for open-ended credit.

In-transit inventory will never be as easy a collateral conversation as goods sitting in a domestic warehouse under the lender's nose. But for importers it is too large a pool to leave entirely on the table. With documents of title, lender-controlled cargo insurance, and a well-structured sublimit, a meaningful portion of those goods on the water can move from a zero in the borrowing base to real, working availability.

For additional industry background on asset-based lending structures and terminology, the Asset Based Lending Consultants (ABLC) resources are a useful reference. This article is educational only and is not legal, tax, or investment advice.