Also debt is used for many things for businesses, like to stabilize cash flows, or to reduce risk.
Let’s say Carmen owns an ice cream truck, so she knows that when summer ends she might earn less money. She buys the debt from Bob (who needs money now), so she can collect from Alice come winter, when she needs the money.
It’s also used to inflate asset numbers. Carmen is applying for a loan to improve her ice cream truck, but she needs to put some of her assets as collateral. In theory she could count Alice’s debt as money she has the right to, but doesn’t have right now, so she can say to the bank “hey here’s 1000 I expect to have this winter as colateral for the loan”
Also debt is used for many things for businesses, like to stabilize cash flows, or to reduce risk.
Let’s say Carmen owns an ice cream truck, so she knows that when summer ends she might earn less money. She buys the debt from Bob (who needs money now), so she can collect from Alice come winter, when she needs the money.
It’s also used to inflate asset numbers. Carmen is applying for a loan to improve her ice cream truck, but she needs to put some of her assets as collateral. In theory she could count Alice’s debt as money she has the right to, but doesn’t have right now, so she can say to the bank “hey here’s 1000 I expect to have this winter as colateral for the loan”
Okay nice. This part makes more sense now. Thank you!