Fin/200 Week 5 Check Point
Long and short term financing
Camille O 'Roarke
FIN/200
August 16,2013
Mark Empasis
Long and short term financing
A small or large business alike both needs access to short-term and long-term loans. Short-term loans can help improve cash flow and can be used to increase inventory while long-term loans are more for larger purchases such as equipment or even leases.
“--There are several types of short-term financing: an overdraft, a letter of credit, a short-term loan, and a bill of exchange. An overdraft is an extended credit granted by a financial institution. A letter of credit is a guarantee of payment to a seller. A short-term loan is for a period of less than a year, and it has to be repaid with interest over a fixed period of time. A bill of exchange is a binding document, where one party agrees to pay another party a specified amount by a certain date. “ (Short Term -vs.- Long Term Loans, Jan.2013) All of these types of short-term credit can be helpful when a business needs a boost of extra cash to cover costs because of slow receivables or even payroll. While this would be a temporary fix, which would flag a need to review costs, payables, receivables, and employee overtime that may be cutting into the company costs, it is a good short-term solution for any business. “Long term financing refers to financing that spans a longer period of time that could go up to about 3-30 years or more. Long-term loans are riskier in nature, and banks or financial institutions providing the loan have more to lose since the amount borrowed is larger, and period of repayment is longer. Therefore, when banks offer longer-term loans some form of collateral is required to ensure that the borrower will not default on his repayment.” (Difference Between Long-term and Short-term Financing, Nov. 2012) This type of financing is typical for a business that is starting up and needs to purchase new equipment such as machinery and vehicles. It is also typically seen
Camille O 'Roarke
FIN/200
August 16,2013
Mark Empasis
Long and short term financing
A small or large business alike both needs access to short-term and long-term loans. Short-term loans can help improve cash flow and can be used to increase inventory while long-term loans are more for larger purchases such as equipment or even leases.
“--There are several types of short-term financing: an overdraft, a letter of credit, a short-term loan, and a bill of exchange. An overdraft is an extended credit granted by a financial institution. A letter of credit is a guarantee of payment to a seller. A short-term loan is for a period of less than a year, and it has to be repaid with interest over a fixed period of time. A bill of exchange is a binding document, where one party agrees to pay another party a specified amount by a certain date. “ (Short Term -vs.- Long Term Loans, Jan.2013) All of these types of short-term credit can be helpful when a business needs a boost of extra cash to cover costs because of slow receivables or even payroll. While this would be a temporary fix, which would flag a need to review costs, payables, receivables, and employee overtime that may be cutting into the company costs, it is a good short-term solution for any business. “Long term financing refers to financing that spans a longer period of time that could go up to about 3-30 years or more. Long-term loans are riskier in nature, and banks or financial institutions providing the loan have more to lose since the amount borrowed is larger, and period of repayment is longer. Therefore, when banks offer longer-term loans some form of collateral is required to ensure that the borrower will not default on his repayment.” (Difference Between Long-term and Short-term Financing, Nov. 2012) This type of financing is typical for a business that is starting up and needs to purchase new equipment such as machinery and vehicles. It is also typically seen
References: Difference Between Long-term and Short-term Financing. (Nov. 8, 2012). Retrieved from http://www.differencebetween.com/difference-between-long-term-and-vs-short-term-financing/ Short Term -vs- Long Term Loans. (Jan. 30, 2013). Retrieved from http://www.thesmallbusinessfund.com/blog/2013/1/30/short-term-vs-long-term-loans.html