Short Term Financing Essay Example | Topics and Well Written Essays - 750 words

Short Term Financing - Essay Example The intention of going for short term financing is essentially to raise funds for operational activities of the business, these essentially means that such kind of financing is required on a very sort-notice hence the high cost of servicing it in terms of interest. Short term operation money may be secured first, any encumbered physical assets of the business second, additional funds from shareholders, or personal guarantees fro principals. On occasion, inventories can be used as temporary security for operations loans. In essence short term borrowing should be used for working requirements for day to day operations of a business. Industries with seasonal peaks and troughs and those engaged in international trade will be heavy users of short term borrowing / Banks allow their customers for certain overdraft amount. They no longer need to work with a series of pr-signed drafts .They allow customers to withdrew more funds than what is the current account up to approved limits Some banks help their customers transform book debts into cash by advancing up to 80% of the credit term invoice value. To ease the company's workload further to banks collects the cash from creditors on behalf of a customer so that cash floe can be allowed, raise additional capital easily and quickly and save administrative time. Some businesses tend to confuse which source to go for but there must be a clearly idenfiable reason why a business has to source for funds before deciding on which source to go for. This can give a clear direction. There are no guarantees that the rule of determining the source of finance ca purely be followed, at some stage the firm may go for long funds when really they should have gone for short and vice versa. This can be influenced by the cost implications of going for one and not the other. If going for short term might cost the business a lot in terms of interest, then they may opt for long term. At one point, even the real consumer need also to be on he look out on which form of way o raise funds depending on what is the problem one wants to address. One can not go for a long term loan for a school fees for kids because this necessary need to take a lot of documentation to have it processed. The same considerations are equally to be viewed fro the same perspective whether consumer or business. Conclusion. There is no confusion at all between the sources which an establishment should adopt or an individual should go for. As long as one identifies the objective of the loan or finance, it is easily determinable on which one should be opted for. All the matters is the urgency with the funds are needed and the purpose for which the funds are needed. Bibliography: 1. P.A. Pandey: Financial management, 2nd edition, Central law agency,