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 Overdrafts 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 loan because it helps the company with raising working capital and cover accounts payable. Although, Overdraft can be just as effective in the everyday use for normal operating capital needs. Most if these have some use at different stages in a company’s time of operational growth. References Business Dictionary, 2010, Overdrafts, Retrieved on June 11th, 2010, from http://www.businessdictionary.com/definition/overdraft.html Business Dictionary, 2010, Bill of Exchange, Retrieved on June 11th, 2010, from http://www.busineesdictionary.com/definition/bill-of-exchange-BOE.html