Fin 200

Long-Term and Short-Term Financing

Leslie Rocha

Fin 200

October 21, 2011

Timothy Simpson

Long-Term and Short-Term Financing

When comparing Long-Term and Short-Term Financing you need to provide long-term funds to cover some short term needs.

Long-Term capital is being used for fixed assets, permanent current assets, and part of temporary current assets. When using long-term capital to cover short-term capital the company needs to make sure they have adequate capital at all times.

The interest rate is usually lower on short-term funds and this type of financing is usually required for a period of one year or less. They also refer to this as working capital.

Long term financing is usually for a time period of more than a year. Typically, long term financing is usually for businesses or individuals that are facing a shortage of capital for a project or a personal need. Long term financing in relation to businesses are used in many different ways, such as expanding a company, purchasing machinery or materials, or buying fixed assets. The type of long term financing a company needs can depend on the company type. The sources of long term financing are debt, derivatives, and equity.

When determining who is eligible for short term financing, creditworthiness comes into play. There are many components of creditworthiness that can be a factoring point when looking at an individual or business. These include character, capacity, circumstances, insurance, and guarantees. Typically, short term financing comes in a few different forms. The primary form is credit, which is when a customer takes merchandise on credit with the agreement to pay it back with interest. Another form of short term financing is factoring in when funds are raised on the company’s debts so that cash is received earlier.