Debt Ratio Analysis Debt Service Coverage Ratio (DSCR) The term “self-liquidating loans” is banker slang.It refers to a loan that is used to generate proceeds that are in turn used to repay the loan.The company borrows money to buy more materials to take advantage of the increasing demand of the busy season.Then when business slows down the company will have less of a need for borrowed funds to finance short-term assets like inventory accounts – the need for financing will decline as the need for inventory declines.At this point, the company will have generated profits from the busy season, and will now be able to use those profits to repay the loans it took out to finance operations during the busy season.Days Inn of America, Parsippany, NJ, is in the midst of a self-liquidating offer the company hopes will boost occupancy levels this spring.In some cases the hundreds of bidders leave such a mess behind them that the cost of cleanup is almost as much as the profit.
See Also: Loan Agreement Collateralized Debt Obligations When is an interest rate not as important in selecting a loan?
Each trying to uncover a “treasure” that probably doesn’t exist in the unit.
Storage auction popularity is becoming a safety issue as well.
A business might use a self-liquidating loan to purchase extra inventory in anticipation of the holiday shopping season.
The revenue generated from selling that inventory would be used to repay the loan.