Short Term Financing Flashcards, test questions and answers
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What is Short Term Financing?
Short-term financing is a type of financial assistance that provides funds for businesses in the short-term. It is typically used to bridge the gap between cash inflows and outflows, or to cover expenses during times when there may be a temporary decrease in revenue. Short-term financing can come from many sources, including banks, credit unions, venture capital firms, angel investors, online lenders and other financial institutions.The most common form of short-term financing is a loan. This type of funding usually carries high interest rates due to its short repayment period (generally one year or less). The borrower must have good credit to qualify for this kind of loan because it’s considered riskier due to its shorter duration. Additionally, some lenders may require collateral such as real estate or equipment in order to secure the loan agreement.Another popular source of short-term funding is through lines of credit or revolving loans. These are flexible arrangements where borrowers receive an amount they can use up to their approved limit without reapplying each time they need additional funds up until the predetermined expiration date arrives at which point they’ll need to renew their line of credit if needed. Lines like these also tend to carry higher interest rates but offer greater flexibility than traditional term loans since you only pay back what you use plus any applicable fees and/or interest charges associated with them. Leasing is another form of short-term financing that allows companies access essential equipment without having the upfront cost burden associated with buying it outright this option often comes with lower initial costs but bigger payments over time depending on how long the lease lasts for and whether there are any early termination fees associated with ending it before then (which could end up being quite substantial). Lastly, invoice factoring involves selling unpaid invoices at discounted prices so businesses can get paid quicker instead waiting 30+ days for payment from customers; however this option does come with some caveats as well given how much money will ultimately get eaten away by factoring fees so it should always be weighed carefully against other alternatives first before committing too deeply into one course action here because no two deals are exactly alike making comparison shopping key when seeking optimal solutions tailored specifically towards your unique set up needs.