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Short Term Debt Avenues

Debt Finance and Loans Explained, Short Term Debt Avenues »

Short-term debt
Loans and instruments used by companies to raise funds for periods up to one year
Short-term debt is used to finance
–      Working capital requirements
–      Cash flow shortfalls
–      Trade credit
Trade Credit
Supplier of goods and services allows the purchaser a grace period before the account’s settlement date
Often includes discount for early payment (2/10 n/30)
The opportunity cost of foregoing the discount can be calculated as
Opp cost =

% discount
X                                 365

100% – % discount
Days difference b/t early and late settlement

= 2/98 x 365/20
= 17.65%
Intercompany loans
Insurance and finance companies and major retailers with short-term …

Debt Finance and Loans Explained, Functions of Banks, Short Term Debt Avenues »

Short-term debt is available from a range of institutions including banks, merchant banks, investment banks and finance companies. The debt may take a variety of forms, ranging from a loan to a situation in which the borrower sells a financial instrument directly into the market and promises to pay the holder of the instrument its face value on the maturity date. The form that the debt will take is normally determined by the credit rating of the issuer, the size of the funding requirement, and the preferences of the investors.
In …