093 682 682 | 078 868 848 | info@pp-hr.com | Join Discussion | ខ្មែរ | English  | 日本語 | 中文  | ไทย한국어Tiếng Việt

Short-Term and Long-Term Financing, Financing Method

Short-Term and Long-Term Financing, Financing Method:

Sources of finance are important for business operation. Two main types of financing business are short-term and long-term financing.

  1. Short-term financing

Short-term financing is less expensive (low interest rate) for business but it is riskier than long-term financing.

The advantages and disadvantages of short-term financing are as follows:

  • Interest rates of short-term financing are lower than long-term financing.
  • Short-term rates are more volatile than long-term financing because short-term loans are due date and interest rates of renewing loans will change.
  • Risk of default of loan may happen if sales of company slow down.
  • Bank may not extend or renew loans, so it is risk for shortage of fund for business operation.
  1. Long-term financing

Long-term financing is more expensive (high interest rate) than short-term financing but it is less risky.

The advantages and disadvantages of long-term financing are as follows:

  • For long-term financing, company has capital at all times.
  • Interest rates of long-term financing are higher than short-term financing.
  • Company may pay interest on excess funds you don’t always need during borrowing period.

In practice, company will decide to use the appropriate “mix” financing between short and long term loan.

  1. Methods for Financing Loan

As mentioned above, mix short and long term financing is good way for operation. Company will match liquidity (life) of assets to the maturity (life) of company loan, so means assets will be generating cash when liabilities come due.

Balanced short and long term financing are as follows:

  • Temporary (seasonal) inventory and accounts receivable will be financed with trade credit, short-term bank loans and short-term notes payable.
  • Permanent (minimum) inventory, receivables, property and equipment and long-term investments will be financed with long-term loans, leases, bonds, capital stock, retained earnings.

Find Jobs Here !

Featured Jobs

Responsibilities Responsible for all underwriting matters related to acceptance of risks/policies and ensures that it is in compliance with the company’s business strategies and risk acceptance guidelines. Conducts review on new and renewal cases. Ensures that issuance of policy documentation is within the timeframe set. Handles enquiries from customers, agents, brokers, reinsurers and internal customers. Provides technical underwriting support to
Responsibilities Sells and markets a wide range of general insurance products and services to meet set targets.  Requirements A recognised University Degree preferably related to Finance and Marketing; Experience in the sales of insurance or financial products will be an advantage; Outgoing with excellent interpersonal and communication skills. Ability to converse in Chinese will be an added advantage. Committed, highly