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Short Term Financing

Short term financing is business financing for one year or less that is usually obtained as working capital for day-to-day operations. The document discusses the pros and cons of short term financing, including that it provides quick funds, is available to those with bad credit due to flexible credit assessments, and offers repayment flexibility. However, short term financing also has higher interest rates than long term loans. For multinational corporations that need cash flow, short term financing can be an invaluable temporary tool until additional resources become available, but it is important to understand the obligations to avoid further damage.

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Jouhara G. San Juan
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162 views1 page

Short Term Financing

Short term financing is business financing for one year or less that is usually obtained as working capital for day-to-day operations. The document discusses the pros and cons of short term financing, including that it provides quick funds, is available to those with bad credit due to flexible credit assessments, and offers repayment flexibility. However, short term financing also has higher interest rates than long term loans. For multinational corporations that need cash flow, short term financing can be an invaluable temporary tool until additional resources become available, but it is important to understand the obligations to avoid further damage.

Uploaded by

Jouhara G. San Juan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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University of Rizal System

Binangonan, Rizal
Graduates Studies
Doctor in Business Administration

Name: JOUHARA G. SAN JUAN


Subject: International Financial Management
Faculty: Dr. Virgilio V. Salentes

Short term financing is business financing that is obtain usually for a term of one


year or less. The term is normally six to twenty four months. The business may
require short term financing to use as working capital. Working capital is the business
money that is needed for the day-to-day operations of the entity.

Pros:
 Quick funds when in need. The biggest advantage of a short term loan is that,
upon approval, it will immediately give funds within a week. If for example, an MNC
need to make a quick payment to outstanding bills, or it needs to purchase new
stock quickly – a short term loan will help meet the cash requirements immediately.
 Available even to those with bad credit. The banks will review the entities credit
standing before supplying a loan, and if the credit report is not up to their standard,
the loan requested by the business will be denied, as they will deem it too high a
risk. Short-term lenders are lenient on credit report and will assess the loan
application by analysing other avenues such as asset values.
 The flexibility of repayments.  It has a range of options for repayments, i.e. if the
entity prefer a 3 month loan or a 6 month loan and so on.

Cons:
 Higher interest rates. The biggest limitation of these loans is that there is
generally a higher interest rate associated with short-term loans as opposed to long-
term loans. However, it is acknowledged in most circumstances that a short-term
loan is only an interim measure to refinance some to a more traditional long-term
loan.

Short term finance for those MNC’s that needs cash flow can be an invaluable tool
to get the business through a tight period until additional resources become available.
While the benefits often outweigh the limitations associated with short-term loans, it is
always important to completely understand what the entity becomes liable for to avoid
further damaging the situation.

(Reflection Paper on Short Term Financing)

jouharagsanjuan Page 1

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