Types of Business

Powerful Essays
CHAPTER: SHORT TERM FINANCING

Topics to be Covered:

1. Meaning and nature of short-term financing.

2. Sources of Short Term Financing.

3. Advantages of Short-Term Financing.

4. Disadvantages of Short Term financing.

5. Purpose of Short-Term Financing.

6. “Ideal Concept” of Short-Term Financing.

7. What is Trade Credit?

8. Reasons for the use of Trade Credit.

9. Factors determining the amount of Trade Credit used

10. Cost of Trade Credit

11. Who bears the cost of Trade Credit?

12. What is Bank Credit?

13. Distinction between Bank Credit and Short Term credit.

14. Characteristics of Short Term financing

Meaning and nature of short-term financing:

Short Term financing is that from of financing which embraces borrowing or lending of funds for a short period of time. It refers to the finance obtained on short term basis, usually one year or less in duration. Short term finance is secured for financing the current assets, for example, inventories. Short term finance is also known as working capital which is the excess of current assets over current liabilities. Current liabilities become due within one year and indicate the amount of short-term credit being utilized by the business. Practically all enterprises use the short-term credit as sources of finance. We find in the balance sheets of almost all the companies some kinds of current liabilities which are the indicator of the uses of short term finance in business. It has been found in the developed countries especially in USA that even the largest business establishment makes use of short term finance. The size of business has an important bearing on the use of short term finance. There is variation in the use of short term finance between the large and small sized business establishments. In practically all types of business, there is lesser use of short term credit among larger concerns. The small

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