Description

Asset-based loans, such as accounts receivable loans and inventory-based loans are ways for companies to free up cash flow that can be used for funding other working capital requirements. These specialized loans, in which a company’s noncash assets that are expected to be converted to cash sometime in the future – such as accounts receivable and inventory – are converted into cash by a bank. This type of lending is generally used when lending from other places in the market is difficult or impossible. Another form of lending is participation lending, which allows many banks to control their credit risk by contributing smaller amounts to a larger loan. In case of a default, the funds at risk are much smaller than if one bank took the whole loan upon itself.
This course introduces accounts receivable and inventory-based loans and the ways to analyze risks associated with these. It then briefly investigates participation loans and focuses on critical points that an analyst must consider when dealing with participation loans.