Asset conversion loan is a type of loan that is reimbursed by liquidating an asset. These types of loans are kind of short term loans and are paid by liquidation inventory or other similar assets. This loan is also called as self liquidating loan as it liquidates the asset involved while repaying it. Sometimes these loans are also repaid from the operating cash flows of the business. However this is done when the firm has received the income in the form of inbound cash flows. These loans are the schedule at the time when cash flows are being received by the firm. These loans are involved within the companies who have seasonal business and they earn their massive chunk of income in that particular season to pay off asset conversion loans.
Most of the companies get asset conversion loans on the short term bases. For example let’s take a case of a chocolate manufacturing company that is preparing a bulk amount of chocolates for Christmas. The case is that the company needs to pay its employees during late November due to upcoming Christmas but don’t have sufficient funds to pay their employs. In such a situation a company can take an asset conversion loan and can use the chocolates as an asset that will help in reimbursing the loans after liquidation. The acquired loan will help the company to fill the cash void and to pay the salaries to their employees. Another alternative of asset conversion loan is the credit line in which a firm may borrow credit depending upon its worthiness and repute in the marketing.
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