Selling Out Of Trust

You work for a car dealership, Big Tim’s Crazy Hondas. The dealership borrows money from a bank to purchase a car it plans to sell. You sell the car. However, your boss, the owner of the dealership, Big Tim himself, doesn’t use the cash from the sale to repay the loan. Instead, he uses the money to purchase more inventory, i.e. another car.

That practice is called selling out of trust. Instead of using the proceeds from the sale of the car to repay the original loan (like he's supposed to), Big Tim has spent the cash somewhere else. It's a risky operation. If Big Tim can't ultimately pay back the loan, he could be in a lot of trouble. Meanwhile, the lender is exposed as well. If Tim defaults, they can't simply repossess the car, as it was sold to the customer.