It is called a self-liquidating loan because the proceeds from the sale of the assets provide the capital with which the debtor may repay the loan.
See Also: Loan Agreement Collateralized Debt Obligations When is an interest rate not as important in selecting a loan?
Debt Ratio Analysis Debt Service Coverage Ratio (DSCR) The term “self-liquidating loans” is banker slang.
During the busy season when business is booming the company needs to borrow money to finance short-term assets such as inventory and accounts receivable.
The company borrows money to buy more materials to take advantage of the increasing demand of the busy season.