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 ...

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