Stanmore Corporation obtains from Southwell Manufacturing a line of credit of $50,000 to help set up a new distribution center. Stanmore initially uses $17,000 for purchase of inventory. Southwell only has a security interest in the inventory that covers that initial $17,000 advance.

Question

Stanmore Corporation obtains from Southwell Manufacturing a line of credit of $50,000 to help set up a new distribution center.   Stanmore initially uses $17,000 for purchase of inventory. Southwell only has a security interest in the inventory that covers that initial $17,000 advance.

Quizplus · Accepted Answer

Southwell's security interest can cover not only the initial $17,000 advance but also future advances under the line of credit, depending on the agreement between Stanmore and Southwell. The security interest is not limited to the initial advance unless specifically agreed upon.

Stanmore Corporation Obtains from Southwell Manufacturing a Line of Credit