Short term self liquidating loans are intended to

12 Jan

Commercial loans usually charge flexible rates of interest that are tied to the bank prime rate or else to the London Interbank Offered Rate (LIBOR).

Many borrowers must file regular financial statements, usually at least annually.

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As soon as cash is realized from the assets, the loan is repaid.

The borrowed money is used to acquire resources that are combined for later sale, and the proceeds from the sale are used to repay the loan.

(Self Liquidating Loan: A type of short- or intermediate-term credit that is repaid with money generated by the assets it is used to purchase.Most short-term unsecured loans are self-liquidating. This kind of loan is recommended for companies with xcellent credit ratings for financing projects that have quick cash flows.short-term working capital loan that is repaid from the liquidation of inventories.Banks like to be able to see where the funds are likely to come from such that the borrower is able to use to make the required loan payments.Short term, self-liquidating loans do this since the borrowed funds are used to purchase assets that generate the needed funds.Suppose From out of a Bank Loan for a period of5 years ==50 Taxi Cars are purchased and the borrower himself runs a Rent a car business.The Assets created out of the Bank Loan are cars which are rent out on a periodic basis say, monthly and the operating income generated out of it net of expenses can be used to liquidate the entire loan without additionally resorting to other incomes by the borrower.A bond used to finance the purchase of assets intended to be sold within a short period of time.For example, a company may issue a self-liquidating bond to pay for its inventory, which it intends to quickly sell.Therefore, they must rely on financial institutions to meet their financing from a bank for a specific amount that has a specified repayment schedule and a floating interest rate.