Chapter 7: Sources of Short term capital

3 segments of business finance

● Short term financing
● Intermediate term financing
● Long term financing
Short-term financing Advantages
● Easier to obtain
● Often Less costly
● Offers flexibility to the borrowers Disadvantages
● Matures more frequently
● Sometimes more costly than long-term debts
Sources of Short-term financing
● Trade creditors-suppliers extending credits to a buyer for use in manufacturing, processing or reselling
goods for profits Trade credit instruments; 1. Open book credit 2. Trade acceptance 3. Promissory note
● Commercial banks- any institution which individuals or firms may tap as source of Short-term
financing.
Banking System composed of Four Components; 1. Commercial banks 2. Development
banks 3. Savings banks 4. Rural banks
Commercial banks offers short term loans which are either
a. Secured b. Unsecured
● Commercial paper houses - short-term promissory note generally unsecured, sold through commercial
paper dealers or directly to investors.
● Finance companies - engaged in making short and intermediate term installment loans to consumers
factor or finance business receivable and finance the sale of business and farm equipment
Three major types of finance companies:
1. Sales finance companies 2. Business or commercial finance companies 3. Personal finance companies
● Factors - performs financial service known as factoring which consists of the purchase of accounts
receivables outright without the course to the seller for credit losses
● Insurance companies - provides stable source of short-term funds
● Company accruals - expense that has been incurred but has not yet been paid.