Stretch Loan

AAA

DEFINITION of 'Stretch Loan'

A loan that is extended to another party, either an individual or subsidiary company, that requires a large proportion of the party's cash flows to service the loan on a monthly basis. Usually, this benchmark is 50% of the party's gross income or more.

INVESTOPEDIA EXPLAINS 'Stretch Loan'

Stretch loans are extended to those individuals or companies that are in dire need of financing. Due to the relatively higher default and financial risk, lenders may require collateral or a large initial down payment before making a stretch loan.

RELATED TERMS
  1. Financial Risk

    The possibility that shareholders will lose money when they invest ...
  2. Default

    1. The failure to promptly pay interest or principal when due. ...
  3. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  4. Default Risk

    The event in which companies or individuals will be unable to ...
  5. Down Payment

    A type of payment made in cash during the onset of the purchase ...
  6. Debt Relief

    The reorganization of debt in any shape or form, so as to provide ...
RELATED FAQS
  1. Why do companies issue debt and bonds? Can't they just borrow from the bank?

    Companies issue bonds to finance operations. Most companies can borrow from banks, but view direct borrowing from a bank ... Read Full Answer >>
  2. What would happen to a company's external fund requirements if it reduces the payout ...

    In short, the stronger the company's internal cash flow, and in turn cash position, the less the need to draw on an external ... Read Full Answer >>
  3. What is the difference between investment banks and merchant banks?

    Merchant banks and investment banks, in their purest forms, are different kinds of financial institutions that perform different ... Read Full Answer >>
  4. What is the difference between asset-based lending and asset financing?

    In the most common usage, the terms "asset-based lending" and "asset financing" refer to the same thing. Asset-based lending ... Read Full Answer >>
Related Articles
  1. Credit & Loans

    The Importance Of Your Credit Rating

    A great starting point for learning what a credit score is, how it is calculated and why it is so important.
  2. Options & Futures

    Payday Loans Don't Pay

    Hold too tightly to this rescue line and you'll soon be drowning in debt.
  3. Entrepreneurship

    How Microfinance and Investment Banking Compare

    Investment banks and microfinance institutions (MFIs) provide similar services, but the clients they serve and the incentives that motivate them are very different.
  4. Investing

    What is Debt Financing?

    When a company needs to pay for something, it can pay with cash, or it may finance the purchase. Financing means that it gets the money from other businesses or sources, in return for obligations. ...
  5. Entrepreneurship

    Mezzanine Financing

    Learn about this alternative method of financing companies use to finance expansion.
  6. Personal Finance

    Promissory Notes: Not Your Average IOU

    These may be a handy way to borrow money, but this convenience does not come without risk.

You May Also Like

Hot Definitions
  1. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  4. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  5. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  6. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
Trading Center