How does an off-chain loan get repaid?
How does an off-chain loan get repaid?
An on-chain loan is repaid when the borrower sends tokens back to a smart contract. An off-chain (RWA) loan is repaid the way any business loan is: from the borrower's revenue, in ordinary money, through the banking system. Here's how that cash gets back to investors.
Where the money comes from
The borrower repays from its business. For a loan against invoices, it's often the borrower's customer who pays: when the invoice is settled, that payment repays the loan. For an equipment or business loan, it's regular instalments from revenue.
Where the money goes
Repayments are typically paid into a controlled collections account rather than the borrower's everyday account. That keeps the money ring-fenced for the lenders it's owed to and makes it easy to check what has come in.
Who gets paid, and in what order
Collected cash is paid out according to a set order, called a waterfall. Costs of running the deal usually come first, then investors, with any remaining amounts flowing further down. At Rekord, our fees sit below investors: you are paid before we are.
Back to investors
For on-chain investors, the final step is converting those real-world payments into the instrument's settlement currency, often a stablecoin, and distributing them under the instrument's terms.
When repayment is late
If a payment is missed, the loan becomes delinquent. Many late payments are caught up. If not, the agreement sets out what counts as a default and what recovery steps follow. Verified, continuous data means investors can see this as it happens.
Related: The payment waterfall, Self-liquidating credit and Delinquency, roll rates and vintages.