DEFINITION of 'Asset-Conversion Loan'

A short-term loan that is typically repaid by liquidating an asset, usually inventory or receivables. An asset-conversion loan is a type of self-liquidating loan and is repaid from operating cash flow; the repayment schedule is designed to match up with the receipt of the anticipated income. Asset-conversion loans are most commonly used by companies with highly seasonal businesses, such as those that earn most of their incomes around Christmas.

BREAKING DOWN 'Asset-Conversion Loan'

For example, let's say a toy company needs to pay its employees in mid-November, but it is cash-poor because it has laid out most of its funds to produce and market toys that won't be purchased until December. One option the toy company might explore is trying to get an asset-conversion loan to fill that short-term cash void. Depending on its creditworthiness, the toy company may have other short-term borrowing options, such as a line of credit, as alternatives to an asset-conversion loan.

RELATED TERMS
  1. Self-Liquidating Loan

    A type of short- or intermediate-term credit that is repaid with ...
  2. Refinance

    1. When a business or person revises a payment schedule for repaying ...
  3. Senior Bank Loan

    A debt financing obligation issued by a bank or similar financial ...
  4. Car Title Loan

    A short-term loan in which the borrower's car title is used as ...
  5. Renegotiated Loan

    The result of an agreement between a borrower and a lender to ...
  6. Loan

    The act of giving money, property or other material goods to ...
Related Articles
  1. Personal Finance

    Understanding Loans

    A loan is the act of giving money, property or other material goods to another party with the expectation of being repaid.
  2. Retirement

    Sometimes It Pays to Borrow from Your 401(k)

    401(k) loans have been demonized, but they're often the most beneficial source of cash.
  3. Insights

    An Introduction to Government Loans

    Government loans further policymakers' efforts to create positive social outcomes by offering timely access to capital for qualified candidates.
  4. Personal Finance

    Understanding Term Loans

    A loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate.
  5. Personal Finance

    Student Loan Debt: Is Consolidation The Answer?

    Consolidating your student loans offers convenience, but there are drawbacks.
  6. Personal Finance

    How To Apply For a Personal Loan

    Learn about different avenues for applying for a personal loan, and learn valuable tips to help you get your personal loan application approved.
  7. Personal Finance

    College Loans: Private vs. Federal

    Not all student loans are the same. Know what you're getting into before signing on the dotted line.
  8. Personal Finance

    Benefits of Federal Direct Loans

    Federal Direct Loans are the most popular federal student loans. This list of benefits will explain why.
  9. Personal Finance

    Personal Loans: To Lend Or Not To Lend?

    Attempting to help a loved one with a cash loan can put a strain on your relationship - and your bank account.
RELATED FAQS
  1. What are the pros and cons of life insurance policy loans?

    Find out the pros and cons of borrowing against your life insurance policy to help you decide if this loan type is the right ... Read Answer >>
  2. How do construction loans work?

    Construction loans are obtained either by the prospective home owner or the actual builder. There are two types of construction ... Read Answer >>
  3. What are the typical requirements to qualify for closed end credit?

    Learn what closed-end credit is, and the various requirements that borrowers must meet in order to obtain a closed-end credit ... Read Answer >>
  4. What are the pros and cons of consolidating my student loans?

    Read about the possible advantages and disadvantages of consolidating your student loan debts, and find out how to determine ... Read Answer >>
  5. Can I take money from my 401(k) to pay taxes?

    Tax bills may be paid from a 401(k) plan balance, but the tax rules surrounding 401(k) loans generally make it cost-prohibitive ... Read Answer >>
Hot Definitions
  1. Treynor Ratio

    A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless ...
  2. Buyback

    The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies ...
  3. Tax Refund

    A tax refund is a refund on taxes paid to an individual or household when the actual tax liability is less than the amount ...
  4. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced within a country's borders in a specific time period, ...
  5. Inflation

    The rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of ...
  6. Merchandising

    Merchandising is any act of promoting goods or services for retail sale, including marketing strategies, display design and ...
Trading Center