Self-Liquidating Loan

What Is a Self-Liquidating Loan?

A self-liquidating loan (or self-liquidating offer) is a form of short-or intermediate-term credit instrument that is reimbursed with money produced by the assets it is utilized to purchase. The repayment schedule and maturity of a self-liquidating loan are planned to concur with when the assets are expected to create income. These loans are expected to finance purchases that will rapidly and dependably produce cash.

How a Self-Liquidating Loan Works

Albeit scarcely any loans are legally named "self-liquidating," the term is normally utilized by bankers to allude to lending arrangements that work as such. It is likewise utilized by some scam craftsmen, as we make sense of below.

A retail business could utilize a self-liquidating loan to purchase extra inventory in anticipation of the holiday shopping season. The revenue produced from selling that inventory would then be utilized to repay the loan. Self-liquidating loans are not generally an insightful credit decision for businesses. For instance, they don't seem OK for buying fixed assets, like real estate, or depreciable assets, like machinery or office equipment.

In numerous ways, a self-liquidating loan is similar as a revenue bond with a sinking-fund feature. Revenue bonds are secured by specific revenue sources, like costs on account of an interstate, and a sinking fund commits money to be set to the side for debt settlement.

Self-liquidating loans don't check out for buying fixed or depreciable assets.

Self-Liquidating Loan Scams

There are likewise a number of investment scams that call themselves "self-liquidating loans" or "self-liquidating assets." Most of these utilization the notions encompassing "self-liquidating" to give the presence of less risk or more security than is justified. A clueless or financially unpracticed investor or business owner can fall casualty to great persuasiveness and misrepresentation.

Features

• A few types of financial scams that appear to be too great to be true use self-liquidation as a hook to draw clueless imprints.
• A self-liquidating loan is a type of short term loan by which the funds borrowed are utilized to buy some asset, which is thus sold at the loan's maturity to repay the loan.
• Cash-creating assets or activities are much of the time the target of these loans since they can undoubtedly be reimbursed by selling the capital purchased, and pocket the cash produced as profit in the interim.