Short-Term Financing Quiz

Define short-term financing

• need for money for a short period of time

• can be secured or unsecured

• flexibility

• high risk

• to fund large projects

Describe sources of short-term financing

• Trade Credit

• Short-Term Loans

• Bank Overdraft

• Deferred revenue

• Equity Capital

Explain advantages of short-term financing

• Short-term financing is often faster to obtain, making it ideal for urgent or unexpected cash flow needs

• Borrowers can access funds for a short duration, avoiding long-term debt obligations

• Short-term loans must be repaid quickly

• Businesses are not locked into long repayment periods, enabling them to clear their obligations quickly

• It helps businesses manage day-to-day expenses, such as payroll, inventory purchases, or utility bills, maintaining smooth operations

List the advantages of short term financing

• Quick Access to Funds

• Flexibility

• Improved Liquidity

• No Long-Term Commitment

List the disadvantages of short term financing

• Short-term loans must be repaid quickly

• The amount available through short-term financing is usually smaller

• Improved Liquidity

• No Long-Term Commitment

Briefly explain on line of credit

• Loans are specifically designed to cover the day-to-day operational   expenses of a business, such as salaries, raw material procurement, and utility payments

• A pre-approved credit limit that a business can draw from as needed. It is similar to an   overdraft but often more structured

• Allows businesses to withdraw funds exceeding their account balance, up   to an agreed limit.

• The pledge of the buyer to the seller for making the payment

Briefly explain on trade credit

• The pledge of the buyer to the seller for making the payment

• A pre-approved credit limit that a business can draw from as needed. It is similar to an   overdraft but often more structured

• A credit drawn out by one seller to another when a credit purchase has been made, it helps in supplying goods without immediate payment of cash

• The expenses which already been acknowledged in the books and yet to pay

Briefly explain on letter of credit

• The pledge of the buyer to the seller for making the payment

• A pre-approved credit limit that a business can draw from as needed. It is similar to an   overdraft but often more structured

• A credit drawn out by one seller to another when a credit purchase has been made, it helps in supplying goods without immediate payment of cash

• The expenses which already been acknowledged in the books and yet to pay

List out the bank finance

• Short-Term Loans

• Working Capital Loans

• Discounting Bills of Exchange

• Bank Overdraft

• Line of Credit

What is the primary purpose of a business line of credit?

• To offer a flexible borrowing option for short-term financial needs

• To provide a fixed amount of capital for long-term investments

• To facilitate the purchase of inventory on credit

• To secure a loan against physical assets of the business