self-liquidating loan

Dictionary of Accounting Terms for: self-liquidating loan
self-liquidating loan

seasonal loan that is used to pay for a temporary increase in accounts receivable or inventory. 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. 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.

Dictionary of Banking Terms for: self-liquidating loan
self-liquidating loan

short-term working capital loan that is repaid from the liquidation of inventories. It is used to finance seasonal borrowing needs of a business needing capital to acquire inventory, by a farmer or other business needing bank financing to buy seed, fertilizer, and other supplies. The borrower repays the loan as inventory is converted into cash or a farm crop is sold. Early in the twentieth century, commercial banks made only short-term loans, and self-liquidating loans were a common variety.

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