Introduction to Finance: Markets, Investments, and Financial Management, Fourteenth Edition

Chapter 16. Short-Term Business Financing

Chapter Learning Objectives:

AFTER STUDYING THIS CHAPTER, YOU SHOULD BE ABLE TO:

• Identify and describe strategies for financing working capital.

• Identify and briefly explain the factors that affect short-term financing requirements.

• Identify the types of unsecured loans made by commercial banks to business borrowers.

• Describe the use of accounts receivable, inventory, and other sources of security for bank loans.

• Explain the characteristics, terms, and costs of trade credit.

• Explain the role of commercial finance companies in providing short-term business financing.

• Briefly describe how factors function as a source of short-term business financing.

• Describe how the Small Business Administration aids businesses in meeting short-term borrowing needs.

• Describe how and why commercial paper is used as a source of short-term financing by large corporations.

Where We Have Been...

The balance sheet identity is total assets equals liabilities plus stockholders' equity. In other words, a firm's assets must be financed from one or a combination of two basic sources: debt and owner's equity. Among the assets that need to be financed are short-term or current assets: cash, marketable securities, accounts receivable, and inventory. The previous chapter examined some issues relating to managing current assets, including forecasting their level and forecasting short-term borrowing needs (the cash budget). This chapter will discuss basic financing strategies for the ...