Refund capacity

The repayment capacity of a loan is the amount of cash that can be released by the borrower at maturity to repay it.

For loans repayable monthly by an individual , it is his monthly income minus his incompressible charges. The banks used especially standards corresponding to a percentage of the borrower stable income (eg 25 or 30% of salary).

This calculation is made in particular by the rating agencies .

For loans to a company means:

  • for a medium-term loan, the “free” cash flow (= after deduction of current incompressible investment needs) that can be released at each amortization date of the loan;
  • for a short-term loan, it is the amount of its predictable cash at maturity taking into account in particular the payments that the company will receive from its customers before that date.

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