Short Term Financing Sources And Types

Today’s post is about Short Term financing, Sources, what is all about, how to use it and the types of short term financing we have in finance and also kinds of loans.

Short term financing is the type of finance that is provided for periods not exceeding one year. Generally, firms seek this type of finance to enable them provide funds for their current needs.

Short Term Financing Sources And Types

In looking for this type of finance, the financial manager seeks specific answers to the following questions, what is the cost of such finance, how flexible is the finance and finally how restrictive are the provisions of the contractual terms.

Every aspect of finance has a sort of cost attached to it. That is to say that funds are not provided free of charge, as the financial manager must evaluate this cost against the benefit he expects from utilizing the facility.

The financial manager will want to know whether it is possible to increase the volume of credit or whether his organization is stuck with that level of credit. The financial manager must evaluate the amount of restriction which the credit has imposed on his organization.

Sources and Types of Short Term Financing

1. Trade Crédit

This is the type of credit that is extended in the course of normal trading activity. Trade credits are allowed in most cases to create goodwill between trading partners, and also covers period from when the customer takes physical possession of the goods to when he is required by the creditor to pay for them.

Trade credits are expressed in periods such as ;
2/10 net 40
2/10 net 60 
2/10 net 90 

2. Bank Loans

Short Term Financing Sources And Types
Bank loans can be classified according to securities pledged. In this regard, we have secured and unsecured loans, seasonal loan and interim loan. The Secured Loan which is a form of loans for which securities are pledge as collateral while Unsecured Loan is that type of loan for which there are no securities pledged.
Seasonal Loan are loans given out to people to enable them cope with their economic activities during a particular season. While Interim Loan is a type of loan given to enable a firm tide over temporal cash deficiencies.

This is what i have about short term financing, sources and types of it, next post will be long term financing and what is all about. If you have any question or suggestion please state below thanks.


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