Short-Term Financing

Short-Term Financing

There are many methods for which a firm can seek short terms of financing some of these include:
  1. Overdrafts
  2. Short-term loans
  3. Inventory loan

Most companies use this type of financing for their short-term money needs because it is convenient and not overly expensive. The most common form of business borrowing, an overdraft is a type of revolving loan where deposits are available for re-borrowing, and interest is charged only on the daily overdraft balance. An overdraft is approved only for a fixed period after which it is must be renegotiated.

Short term loans
A short-term business loan can help even out cash flow when your accounts payable schedule is shorter than your sales cycle. Short-term business loans can be a good way to raise working capital and cover accounts payable. Short-term loans can have maturations of as little as 90-120 days or as long as one to three years, depending on the purpose of the loan. In general, banks require very specific repayment plans for their short-term loans.

Inventory loan
An inventory loan is a secured short-term loan to purchase inventory. The three basic forms are a blanket inventory lien, a Trust receipt, and field warehousing financing. This is a loan made available to a business to buy inventory, secured by that inventory. This means that a business is placing its inventory as collateral in exchange for an operating loan. An inventory loan is advantageous for businesses with a larger amount o physical inventory ready to ship. Inventory loans are used as a stop-gap against temporary cash flow problems resulting from inventory that is ready to sell but is not sold.

All of these different short-term sources of financing have different uses and may be needed at different times depending on the type of business the company is conducting. The primary source of short-term financing is the one that is most used by companies and that is the short-term business...