The document discusses the differences between long-term and short-term financing. Long-term financing is used to fund projects and investments that last over one year, such as establishment, expansion, innovation and R&D. It provides more stability but higher interest rates than short-term financing, which is used for working capital and operating expenses lasting less than one year. Some benefits of long-term financing include flexibility, while higher interest costs and rates are drawbacks compared to short-term financing.
2. Long-term financing is a mode of financing that
is offered for more than one year.It is required
by an organization during the
establishment,expansion,technological
innovation,and research and development.
In addition long term financing is required to
finance long term investment projects.Long
term funds are paid back during the lifetime of
an organization.
3. Short term financing means business
financing from short term sources which are
for less than one year.
The same helps the company generate cash
for working of the business and for operating
expenses,which is usually for a smaller
amount
It involves developing money by online
loans,lines of credit and invoice financing
4. Stability-Long-term financing provides
businesses with a more stable debt
management instrument than short-term loans.
Flexibility-There is a wide variety of long term
debt financing options available to
borrowers,such as mortgages,leases,reverse
mortgages and loan refinancing which can be
fine-tuned to meet the borrower’s needs.This
allows more flexibility and control overspending.
5. Higher Interest Rates-The interest rates
available for a long term financing
agreement are usually higher than the rates
available for short term
Greater Interest Cost-The higher rates alone
for a long term loan mean that one will pay
more over the life of the loan than one would
for a short term
6. Interest paid back by value will be lower in
short-term loans than long-term loans
The approval and disbursement process is
faster. As the rate of return increases and
yield per unit time is higher due to interest
rate approval.
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7. When capital is invested in long-term loans, the amount
returned to the bank as interest is higher between the
successive processing of the capital. But if the same
capital is invested in short-term loans, then the amount
returned as interest is lower. To avoid this situation, banks
usually have a higher rate of interest on short-term loans
which increases the cost of borrowing.
2. Easier accessibility can cause the borrower to fall into
the borrowing cycle. As a credit to short-term loans is
easily accessible, a borrower can fall prey to continuous
borrowing cycles.
3. Timely repayment is helpful to increase credit score, but
missing the payments in the short-term can have a severe
impact on the credit score.