Short term financing is business financing that you obtain usually for a term of one year or less. This type of financing is usually required because of the irregular flow of cash into the business, the seasonal outline of business, etc.
Sources of short term financing: There are many sources of short-term financing. Some are mentioned below – Assured expenses; Trade credit; Commercial bank; Commercial paper; Account receivable; Inventory financing; Factors; Co-operative credit policy; Non-Government Organization (NGO); Relatives and friends; Government and autonomous institution etc.
Advantages of short term financing: There are many advantages of this financing. Some are mention below – Easier to obtain; Flexibility; Less cost; Limited risk; Unsecured; Easy to renew; Income tax advantages; Meet up primary emergence; Controlling advantage; Easy term etc.
Disadvantages of short term financing: There are many disadvantages to this financing. Some are mention below – Small amount of loan; Less duration; High rate of interest; Risk of repayment; Less of cash discount; Increase of cost price; Terms of loan etc.
Factors determining the volume of short term financing: There are many factors determining the volume of this financing. Some are given below – Size of business; Type of business; Production cycle; Condition of the market; Nature and size of sales; Goodwill of business etc.
Traditionally, short-term financing is provided by banks and has floating interest rates. Sometimes companies will artificially ‘fix’ these floating rates with a financing derivative, such as a swap.