Explain different sources of short-term finance available to the organization

Certainly, organizations have various sources of short-term finance to meet their immediate funding needs.

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Here are some common ones:

  1. **Bank Loans**: Organizations can obtain short-term loans from banks, typically in the form of overdraft facilities, cash credit, or short-term working capital loans.
  • **Trade Credit**: Businesses can negotiate extended payment terms with their suppliers, allowing them to delay payments for goods or services received, effectively providing short-term financing.
  • **Commercial Paper**: Large, creditworthy companies can issue commercial paper, which is a short-term, unsecured debt instrument, to raise funds from the capital market.
  • **Revolving Credit Lines**: Companies can establish revolving credit lines with financial institutions, which provide access to a predetermined credit limit that can be used as needed.
  • **Factoring**: This involves selling accounts receivable to a factoring company at a discount, providing immediate cash flow rather than waiting for customer payments.
  • **Short-Term Bonds**: Firms can issue short-term bonds with maturities ranging from a few months to a couple of years to raise capital from investors.
  • **Working Capital Loans**: Specifically designed to cover day-to-day operational expenses, working capital loans are offered by financial institutions.
  • **Inventory Financing**: This involves using inventory as collateral to secure a loan or line of credit.
  • **Microloans**: Small businesses may access short-term financing through microloans from organizations or government programs.
  1. **Peer-to-Peer Lending**: Some companies utilize peer-to-peer lending platforms to obtain short-term loans from individual investors.
  1. **Credit Cards**: Business credit cards can be used for short-term financing needs, but they often come with high-interest rates.
  1. **Promissory Notes**: Companies can issue short-term promissory notes to investors, promising to repay the principal amount on a specified date with interest.

Each of these sources has its own advantages and disadvantages, and the choice of financing depends on the specific needs and circumstances of the organization.

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