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 ...