Working Capital and Short-Term Financing

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Business Finance

Question Description

  • Explain the major economic and / or other salient business environmental factors that are likely to impact the availability of short-term financing for a given business. Provide support for your rationale.

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Explanation & Answer

Short-term financing is a short term debt used by firms to finance their business. 

There are a number of factors that will influence short-term financing for a given business.

New businesses have a problem with cash flow. Short term debt is a method used but it is influenced by high interest. If the additional cost on the loan is high, the business can go into red. Interest rates are influenced by government authorities and central bank through open market operations. If interest rates fluctuate constantly, it would be difficult for a short term borrower to pay back immediately.

Economic fluctuations affect the demand and supply of short term financing. During recession,  demand for financing projects and loans will be low because of cost. Short term financing is profitable during economic prosperity.

 Credit worthy- new businesses are denied short term loans because they are not credit worthy and lack the necessary collateral to finance their debt.

Financial institutions use these factors to determine if a short term borrower will keep up with payment.

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Nfzn Onqne (83)
University of Maryland

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