Long-Term & Short-Term Financing?

Short term finance often also referred to as bridge financing represents short term borrowings-obtained by the business to fulfill its day to day working capital requirements. Common sources of short-term finance are:

Short term loans

These loans are for a specific short-term liquidity requirement and repayment is required after a specific short-term time period.

Bank overdraft facility

Bank Overdraft is a credit facility provided by financial institutions with reference to a bank account where borrower/account holder is allowed to withdraw funds more than what they have in their account upto a limit allowed by the lender.

Usually, major receipts of the business are also received in the same account or linked account(s) so the outstanding balance of the overdraft facility keep on changing (overdraft balance increases when borrower withdraws an amount and decreases when borrower deposits any receipt in that account). The interest is payable based on the day end outstanding balance of the overdraft account.

Credit cards

Credit card is also a short term financing option for sole proprietors or small businesses but the amount of financing is limited and subject to higher interest rates.

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