A short-term loan that is extended by a bank to a customer or business so that it is used to acquire assets that will generate enough cash to repay the amount of loan.The prime example is a working capital loan extended to a manufacturer or retail business that has the so-called seasonal sales pattern. In that sense, a firm may obtain a loan from its bank to finance additional inventory in response to seasonal demand (e.g., demand for heating devices increase in winter). The sale of additional units of inventory can generate enough amounts of cash for retirement of the loan.
July 13, 2024
