Asset-Conversion Loan

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. Term Loan

    A loan from a bank for a specific amount that has a specified ...
  3. Commercial Loan

    A debt-based funding arrangement that a business can set up with ...
  4. Refinance

    1. When a business or person revises a payment schedule for repaying ...
  5. Standing Loan

    A type of loan where payments are made of interest only. Repayment ...
  6. Direct Consolidation Loan

    A loan that combines two or more federal education loans into ...
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. Investing

    Different Needs, Different Loans

    Find out what options are available when it comes to borrowing money.
  4. Retirement

    Business Owners: A Guide To Qualified Retirement Plan Loans

    Thinking of adding a loan feature to your company's plan? Here's what you need to know.
  5. Markets

    An Introduction to Government Loans

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

    Understanding Term Loans

    A loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate.
  7. Retirement

    Student Loan Debt: Is Consolidation The Answer?

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

    Personal Loans vs. Car Loans

    How to tell whether a personal loan or a car loan is better for you.
  9. 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.
  10. Markets

    All About Government Loans

    There are many reasons to seek a government loan rather than one from a private lender. Government loans typically have low interest rates and offer fixed or subsidized options, as well as deferred ...
RELATED FAQS
  1. I have a 401k loan, should I receive a form for my income taxes?

  2. Are secured personal loans better than unsecured loans?

    Read about the differences between secured loans and unsecured loans and how they are used. Learn about forms of collateral ... Read Answer >>
  3. 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 >>
  4. What are the differences between delinquency and default?

    Find out more about loan delinquency, loan default, and the difference between a loan borrower defaulting and being delinquent ... Read Answer >>
  5. 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 >>
  6. What are the typical repayment terms for a syndicated loan?

    Learn more about syndicated loans and how they are structured, specifically including the typical repayment terms for a syndicated ... Read Answer >>
Hot Definitions
  1. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  2. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  3. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  4. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  5. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  6. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
Trading Center