Asset Conversion Loan – Definition

Cite this article as:"Asset Conversion Loan – Definition," in The Business Professor, updated October 7, 2019, last accessed August 8, 2020, https://thebusinessprofessor.com/lesson/asset-conversion-loan-definition/.

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Asset-Conversion Loan Definition

This is a short-term loan that is paid for by selling an identified asset (such as inventory).  They are common with seasonal businesses that take out these loans to pay for inventory to be sold in a specific period, such as holiday apparel.

A Little More on What is an Asset-Conversion Loan 

Take the example of a merchant selling fireworks near the 4th of July. Of course, she must purchase all of her inventory well in advance of this date to make certain she has adequate supply. She may not, however, have the funds to purchase enough inventory. She may take out an asset-conversion loan. She pays the loan back immediately upon sale of her inventory (after the 4th of July). The loan will generally be secured by the inventory with a specific provision requiring payment upon sale of said inventory or at a date relevant to sale of the inventory.

Reference for “Asset-Conversion Loan”

https://www.investopedia.com › Investing › Financial Analysis

www.businessdictionary.com/definition/asset-conversion-loan.html

https://www.bankrate.com/glossary/a/asset-conversion-loan/

https://financial-dictionary.thefreedictionary.com/Asset+Conversion+Loan

https://www.finweb.com/loans/what-is-an-asset-conversion-loan.html

Academic research on “Asset-Conversion Loan”

Asset‐based policy in rural China: an innovation in the retirement social insurance programme, Guo, B., Huang, J., Zou, L., & Sherraden, M. (2008). Assetbased policy in rural China: an innovation in the retirement social insurance programme. China Journal of Social Work1(1), 63-76. In response to growing rural–urban inequality, China is undertaking a series of policy initiatives to promote rural development. In addition to redistributive policy aiming at social protection, asset‐based policy, which integrates social protection and social investment, are a viable option for progressive rural development. In 1998, the Hutubi local government in Xinjiang, China, implemented an innovative retirement programme that allows account holders to use accounts as legal collateral to borrow small loans and invest in productive assets, education, and small businesses. Using the data gathered by the programme organizers and in‐depth interviews with programme participants, this case study closely examines the Hutubi programme. We examine the programme’s key features, which have effectively encouraged asset building in a rural community, and identify the programme’s strengths and weaknesses. The success of the Hutubi programme has implications for asset‐based policy development in rural China.

Models and solution techniques for cash flow management, Golden, B., Liberatore, M., & Lieberman, C. (1979). Models and solution techniques for cash flow management. Computers & Operations Research6(1), 13-20. Cash flow management is a financial problem encountered by companies and consumers alike. It involves the efficient management of cash, short-term investments and short-term loans. In recent years, with such a high rate of inflation and the resulting high levels of interest rates and high cost of idle funds, this problem has become increasingly important. In this paper, we formulate the cash flow problem as a network optimization problem. Our model provides more visual insight than previous models, is very flexible and can be solved very efficiently. Several examples and computational aids are discussed in detail.

Innovation in finance and movement to client‐centered credit, Von Pischke, J. D. (2002). Innovation in finance and movement to clientcentered credit. Journal of International Development14(3), 369-380. Progression from product‐centred to client‐centered lending is made possible by innovation, which is by definition cost‐reducing. Innovation in finance occurs in three ways: lengthening term structure, reducing transaction costs, and refining valuation processes. Each of these involves risk. The Thesis Statement is consistent with observed market behaviour but may be criticized for insufficient attention to risk as part of the mechanics of the progression it portrays. As is rapidly occurring in the US, personal credit in other countries will move toward being based almost entirely on empirical probability and hence client‐centered as foreseen in the Statement. In the meantime, the market for money progresses at various speeds from being product‐centered to being client‐centered. When this progression is complete, marketing will be as strategically important as risk management. To the extent that marketing is thought, prematurely, to trump risk management as the key to success, and to the extent meeting client ‘needs’ is viewed as the primary objective, attempts at innovation are likely to fail. When this failure occurs, the social and economic benefits of denying loans will be foregone, hindering development. Questionable projects with problematic sponsors and improper financing will be taken on, limiting growth. Copyright © 2002 John Wiley & Sons, Ltd.

Credit Management, Lee, W. F. (1983). Credit Management.

Understanding effective cash management, Reider, R. (2005). Understanding effective cash management. Journal of Corporate Accounting & Finance17(1), 7-15. To really be effective at cash management, you must look at many different operational areas in your company. The author presents a valuable how‐ to guide so you can understand and master effective cash management technique.

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