Asset Conversion Loan
Your furniture business needs a loan for $14,000 to buy ten of the latest lazy chairs that your customers have been requesting. Pronto. Your bank gives you a short-term asset conversion loan for 14 grand. In exchange, you promise to sell 15 couches to a friendly store out of competitive range to pay the loan back.
Asset conversion loans are done when a business has surplus inventory, but needs cash quick. The loan is made against that inventory, and as the inventory is sold, the loan is paid off. For example, the company could offer a certain portion of inventory in exchange for the loan with an arrangement along the lines of "When it sells, the bank gets XYZ." When it sells, the business pays the bank.
If it doesn't sell, the bank can take the inventory, and also collect fees etc., because the business defaulted. A business might do this if it's seasonal business and knows it will (hopefully) sell all the inventory soon, but right now needs the cash more.
Related or Semi-related Video
Finance: What is a Hard Asset?12 Views
Finance allah shmoop What is Ah hard asset Yeah It
takes a lot of hard work to get an asset
like that Okay So hard asset is just one that
you can bang on touch Engage with cell Alright examples
Oil it's Hard asset gold Hard of vintage nineteen Fifty
seven Ferrari with beige leather interior hard four thousand head
of longhorn cattle in texas A commercial building in the
best part of town All of these arm or less
commodities Hard assets Well okay Okay The categories Rare cars
art coins stamps stuff like that that's where they fit
So what do you care if something is ah hard
asset or a soft one Well most or all hard
assets are commodities and they generally do very well in
periods of very high inflation when you know stocks were
getting crushed And yeah the feds raising rates appoint a
quarter now forever Well equities and bonds will get crushed
Commodities well generally keep up with the spike in prices
causing the fed raised rates in the first place So
they're a good hedge for most investment portfolios And not
all of them are great forever like check out riel
Inflation adjusted oil prices the last few decades you had
not a good run Most not all do well though
an oil will likely have its day in the sun
again At some point you lan When in doubt remember
what kim kardashian and warren buffett said A good asset
is hard to find and a hard asset is good
to find But we won't tell you who said which
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