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Daniela Midgley
@midgleydaniela 21, Apr 2023 12:00 AM
short-term Finance
What are the three sources of short-term Finance used by a company?
answers 1
Answer 1
Cullen Belcher
@belchercullen 28, Apr 2023 10:22 AM
Short-term financing is done by the company to fulfill its current cash needs. Short-term sources of finance are required to be repaid within 12 months from the financing date. Some of the short-term sources of financing are: Trade Credit, Unsecured Bank Loans, Bank Over-drafts, Commercial Papers, Secured Short-term loans.
Trade Credit is an agreement between a buyer and a seller of goods. In this case, the buyer of the goods purchases the goods on a credit i.e. the buyer pays no cash to the seller at the time of buying the goods, only to pay at a later specified date. Trade credit is based on mutual trust that the buyer of the goods will pay the amount of cash after a specified date.
Bank Overdraft is a type of short-term credit that is offered to an individual or a business entity having a current account which is subject to the bank’s regulation. In this case, an individual or a business entity can withdraw cash more than what is present in the account. Interest is charged on the amount of over-draft which is withdrawn as a credit from the bank.
Unsecured Bank Loan is a type of credit that banks are ready to give and is payable within 12 months. The reason why it is called an unsecured bank loan is that no collateral is required by the individual or a business entity taking this loan.