Self liquidating loan example
It refers to a loan that is used to generate proceeds that are in turn used to repay the loan.Basically, a borrower takes out a loan that is used to finance business activities that generate revenue.A loan used to finance the purchase of assets intended to be sold within a short period of time.For example, a company may use a self-liquidating loan to pay for its inventory, which it intends to quickly sell.This is absolutely legal under international banking rules.Some procedures must be respected and you have to know what to do and how.Then the borrower takes the revenue generated from those business activities and uses it to repay the money that was borrowed to finance the activities.
Basically, an Arbitrage Loan, looks like this: All of the above actions take place SIMULTANEOUSLY at the closing of the loan, which is arranged by the " Escrow or law firm " for the Boutique Investment Banker who put the deal together.
Of course, since you will be buying the required collateral and income-producing instruments from the loan proceeds, your credit history does not matter. How can it be a rip-off if there aren't any front-fees involved? Could I do a Self-Liquidating Loan in a smaller amount and have a better chance of success?
We repeat that All you have to have is a viable project for which the fall-out from the loan will be used. Can I do a Self-Liquidating Loan locally; In my own home town?
The perfect example of such a self-liquidating situation is a working-capital loan made to a manufacturer or retailer that has a marked seasonal sales pattern.
For example, retail sales of a toy manufacturer’s product peak just before Christmas each year.