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FAQ #31333

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What is meant by the term "repayment capacity"?

Related resource areas: Entrepreneurs & Their Communities


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Repayment capacity measures provide insight into your ability to generate enough funds to make debt payments on intermediate and long-term loans (loans longer than one year) and to replace capital assets. If used alone, these measures only provide a snapshot of the business's ability to perform. It is better when they are used along with a cash flow analysis to be certain that the business is able to meet its financial obligations over a longer period of time. The two financial measures relevant to repayment capacity are "term debt and lease coverage ratio" and "capital replacement and term debt repayment margin".

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