Describe major sources of short term financing?
Purpose of Short-term Finance After establishment of a business, funds are required to meet its day to day expenses. For example raw materials must be purchased at regular intervals, workers must be paid wages regularly, water and power charges have to be paid regularly. Thus there is a continuous necessity of liquid cash to be available for meeting these expenses. For financing such requirements short-term funds are needed. The availability of short-term funds is essential. Inadequacy of short-term funds may even lead to closure of business.
1.Bank Credit
Commercial banks grant short-term finance to business firms which is known as bank credit. When bank credit is granted, the borrower gets a right to draw the amount of credit at one time or in instalments as and when needed. Bank credit may be granted by way of loans, cash credit, overdraft and discounted bills.
2.Trade Credit
Trade credit refers to credit granted to manufactures and traders by the suppliers of raw material, finished goods, components, etc. Usually business enterprises buy supplies on a 30 to 90 days credit. This means that the goods are delivered but payments are not made until the expiry of period of credit. This type of credit does not make the funds available in cash but it facilitates purchases without making immediate payment. This is quite a popular source of finance.
3.Cash Credit
It is an arrangement whereby banks allow the borrower to withdraw money upto a specified limit. This limit is known as cash credit limit. Initially this limit is granted for one year. This limit can be extended after review for another year. However, if the borrower still desires to continue the limit, it must be renewed after three years. Rate of interest varies depending upon the amount of limit. Banks ask for collateral security for the grant of cash credit. In this arrangement, the borrower can draw, repay and again draw the amount within the sanctioned limit. Interest is charged only on the amount actually withdrawn and not on the amount of entire limit
4.Overdraft
When a bank allows its depositors or account holders to withdraw money in excess of the balance in his account upto a specified limit, it is known as overdraft facility. This limit is granted purely on the basis of credit-worthiness of the borrower.
Describe the three major sources of short-term financing.
12. Sources of short-term financing Aa Aa Short-term credit, or short-term financing, is any liability that is scheduled for repayment within one year. Among the sources of short-term funds are banks, suppliers, securities firms, and insurance companies. Their securities (or obligations) can take the form of bank loans, trade credit, commercial paper, and accruals. Some types of short-term financing are easier to obtain and manage than others. Financial managers should consider the costs of the various sources of financing as...
What are sources of short-term financing? Check all that apply: Short-term bank loans Accounts receivable financing Inventory financing Accounts payable Commercial paper
Describe the sources of long-term financing for health care organizations.
Drop-down options: (accruals, trade credit, commercial paper,
bank loans)
12. Sources of short-term financing Short-term credit, or short-term financing, is any liability that is scheduled for repayment within one year. Among the sources of short-term funds are banks, suppliers, securities firms, and insurance companies. Their securities (or obligations) can take the form of bank loans, trade credit, commercial paper, and accruals. Some types of short-term financing are easier to obtain and manage than others. Financial managers should consider the costs...
Aa Aa 12. Short-term financing Why use short-term financing? Cash flows from operations may not be sufficient for a firm to keep up with growth-related financing needs, or the firm may not be able to always generate enough cash flow to maintain a surplus of cash. Firms prefer to borrow now to fulfill their capital requirements through means of short-term financing or long-term financing. Both methods have their advantages and disadvantages. The following statement identifies a possible characteristic of short-term...
Before 2008 the trend towards short term financing was fuelled by a global surplus of cheap bank finance, however, the financial crisis put an end to this. Arnold 2019 Required: Outline the advantages and disadvantages of a company following an aggressive and conservative financing policy. And discuss how each of these policies might impact on its value. Describe two sources of short term finance (one bank source and one other) and evaluate the advantages and disadvantages of each source.
Before 2008 the trend towards short term financing was fuelled by a global surplus of cheap bank finance, however the financial crisis put an end to this. Arnold 2019 Required: Outline the advantages and disadvantages of a company following an aggressive and conservative financing policy. And discuss how each of these policies might impact on its value. Describe two sources of short term finance (one bank source and one other) and evaluate the advantages and disadvantages of each source. Discuss...
Before 2008 the trend towards short term financing was fuelled by a global surplus of cheap bank finance, however the financial crisis put an end to this. Arnold 2019 Required: Outline the advantages and disadvantages of a company following an aggressive and a conservative financing policy. And discuss how each of these policies might impact on its value. (8 marks) Describe two sources of short term finance (one bank source and one other) and evaluate the advantages and disadvantages of...
Tobit Financing offers short-term financing plans to other companies. It buys the accounts of other companies at a discount and collects the full amount from the customers of those companies. Which of the following short-term financing options is being provided by Tobit Financing in this scenario? A) Trade Credit B) Commercial Paper C) Factoring D) Short-term Bank Loans