Short Term Finance

man

USHMS Inc., providing Short-term finance.Short-term debt is defined as a loan for a period of one year or less. Businesses benefit from using short-term debt in different ways.

Operating Capital

Operating capital is defined as cash available to pay for the day-to-day operations of a business.Ideally, operating capital is available from the revenue generated by business operations. During the initial period a business is in operation, and at other times during its existence, revenue may not keep up with operational expenses.

One of the advantages of short-term debt is ensuring that cash is available to satisfy the operating capital needs of a business. Short-term debt literally is used to keep a business running during times when the revenue stream temporarily is insufficient to meet operational needs.

BENEFITS

Speed

Short-term loans can be obtained much faster than long-term financing. Lenders do not make as thorough an examination of a company’s accounts for short-term lending as they do in the case of long-term loans. Small- and medium-size companies often do not have large cash reserves and are vulnerable to sudden financial shocks such as bankruptcy or of non-payment by a key debtor.

Flexibility

Small companies often have seasonal variations in cash flow and need access to capital over that period. Overdraft protection is a form of short-term finance where a bank agrees to pay a company’s checks, electronic debits, and cash withdrawals to a certain limit. The lender charges a fee for this facility and interest on any balance outstanding. The costs of long- term debt may be greater than those for such a short-term facility.

Management

Lenders who extend short-term financing do not involve themselves in company management or in the business’ decisions about capital investment. Long-term finance is accompanied by a number of provisions, such as limits on other financial arrangements or caps on the salaries of company principals, that restrict the business’ actions.