5.

Short long term financing

1. Characteristics of short term credit

Short-term credit is a type of credit that is designed to be repaid in a short period of time, usually within a
year or less. Here are some characteristics of short-term credit:

1. Repayment Period: The repayment period of short-term credit is relatively short, usually ranging from a
few weeks to a year. This makes it ideal for businesses or individuals who need to meet immediate
financial obligations and cannot afford a long-term commitment.
2. Interest Rates: Short-term credit generally has higher interest rates compared to long-term credit, as the
lender is taking on a higher level of risk in lending to borrowers for a shorter period of time.
3. Collateral: Short-term credit may require collateral, such as assets or property, to secure the loan. This is
to ensure that the lender has some form of security in case the borrower defaults on the loan.
4. Speed of Approval: Short-term credit can often be approved quickly, making it a popular option for
businesses or individuals who need access to funds urgently.
5. Loan Amounts: Short-term credit is usually offered in smaller loan amounts compared to long-term credit.
This is because lenders are less willing to take on a high level of risk for a short period of time.
6. Flexibility: Short-term credit can be more flexible than long-term credit, as borrowers have the option to
repay the loan early without incurring penalties. This makes it ideal for businesses or individuals who have
unpredictable cash flows.

Overall, short-term credit is a useful tool for meeting immediate financial obligations. However, borrowers
should be aware of the higher interest rates and the need for collateral when considering this type of
credit.

Major source of short term credit

Short-term credit is a type of financing that a firm obtains to meet its immediate cash requirements,
usually for a period of one year or less. There are several sources of short-term credit available to a firm,
including:

1. Trade credit: Trade credit is a type of credit extended by suppliers to their customers. It is a convenient
and flexible way to finance short-term cash requirements. The supplier provides goods or services to the
customer on credit, allowing the customer to pay for them at a later date.
2. Bank loans: Banks offer various types of short-term loans to businesses, including working capital loans,
revolving credit lines, and letters of credit. These loans provide immediate cash flow to the firm and can
be used to finance day-to-day operations, purchase inventory, or meet other short-term cash needs.
3. Commercial paper: Commercial paper is a type of unsecured promissory note that is issued by a company
to raise short-term capital. It is typically issued for a period of 270 days or less and is sold at a discount to
face value.
4. Factoring: Factoring is a financial transaction in which a firm sells its accounts receivable to a third party at
a discount. This provides the firm with immediate cash flow and reduces its risk of bad debt.

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5. Inventory financing: Inventory financing is a type of loan that is secured by a company's inventory. The
lender provides a loan based on the value of the inventory, which the company can then use to finance its
operations.

In order to obtain short-term credit, a firm typically needs to demonstrate its creditworthiness and ability
to repay the loan. This involves providing financial statements, credit history, and other relevant
information to the lender. Once the creditworthiness has been established, the firm can negotiate the
terms of the loan, including the interest rate, repayment period, and other terms and conditions.

Overall, short-term credit is an essential source of financing for many firms, allowing them to meet their
immediate cash needs and maintain their day-to-day operations. By utilizing a combination of different
sources of short-term credit, firms can manage their cash flow effectively and minimize their risk of
financial distress.

3. some characteristics of major long term financing source used by firms

Long-term financing refers to the process of obtaining funding for a business venture or project for a
period of more than five year. Long-term financing is used to finance capital-intensive projects such as
building a factory, purchasing machinery, or expanding the business. Unlike short-term financing, which is
typically used to meet immediate cash flow needs, long-term financing is used to finance long-term
investments.

The five major sources of long-term financing used by firms include:

1. Equity Financing: This is the process of raising capital by issuing shares of ownership in the company to
investors. This can be done through an initial public offering (IPO) or by selling shares to private investors.
2. Debt Financing: This is the process of raising capital by borrowing money from lenders such as banks or
other financial institutions. The borrowed funds are then repaid over a set period of time, usually with
interest.
3. Convertible Debt: This is a type of debt financing that can be converted into equity at a future date. This
allows the investor to have the option to convert their debt into ownership in the company at a later date.
4. Leasing: This is a form of long-term financing where a company leases assets such as equipment or
property for a set period of time. The lessee pays a periodic fee to the lessor for the use of the asset.
5. Venture Capital: This is a type of long-term financing that is provided by investors who are looking to
invest in start-up or early-stage companies with high growth potential. In exchange for their investment,
venture capitalists receive an ownership stake in the company.

Some characteristics of these long-term financing sources are:

 Equity financing allows the company to raise capital without incurring debt obligations and does not
require repayment, but it dilutes the ownership of existing shareholders.
 Debt financing provides the company with a fixed payment schedule and allows the company to maintain
control, but it carries interest costs and requires collateral.
 Convertible debt is a hybrid financing source that combines the benefits of debt and equity financing, but
it carries the risk of diluting ownership if the debt is converted into equity.
 Leasing allows the company to use assets without incurring the full cost of ownership, but it may result in
higher total costs over time.

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 Venture capital provides the company with funding and expertise, but it requires the company to give up
a portion of ownership and control, and may also have stringent performance requirements.

4. compare and contrast between debt ,preferred stock, common stock, retained earnings with point

Debt, preferred stock, common stock, and retained earnings are all different forms of financing that a
company may use to raise funds. Here are some points to compare and contrast these financing options:

Debt:

 Debt is a form of financing in which a company borrows money from lenders such as banks, bondholders,
or other financial institutions.
 The company is required to pay interest on the amount borrowed, which is a fixed cost.
 Debt financing is considered less risky for investors than equity financing, as debt is usually secured by
collateral or assets of the company.
 However, excessive debt can be risky for a company if they are unable to make the required payments or
if interest rates rise significantly.

Preferred stock:

 Preferred stock is a form of equity financing in which investors buy shares of the company's stock that
have preference over common stock in terms of dividend payments and asset distribution in the event of
bankruptcy.
 Preferred stock usually pays a fixed dividend, which is similar to the interest paid on debt.
 Preferred stockholders do not have voting rights in the company.
 Preferred stock is considered less risky than common stock, but more risky than debt, as it is subordinate
to debt in the event of bankruptcy.

Common stock:

 Common stock is a form of equity financing in which investors buy shares of the company's stock that
give them ownership in the company and voting rights.
 Common stock does not pay a fixed dividend and the return on investment depends on the company's
performance and stock price.
 Common stock is considered the most risky financing option as shareholders bear the highest risk in the
event of bankruptcy.

Retained earnings: ধরে রাখা হয়েছে

 Retained earnings are profits that a company has earned and kept for reinvestment in the company.
 Retained earnings can be used to finance future growth and expansion without diluting ownership or
taking on additional debt.
 Retained earnings can also be distributed to shareholders as dividends, which reduces the need for
external financing.
 Retained earnings are considered a relatively safe financing option as they are not subject to interest
payments or repayment obligations.

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Preferred Common Retained

Criteria Debt Stock Stock Earnings

Partial
Ownership No ownership ownership Full ownership No ownership

Claim on Assets Senior claim Junior claim Residual claim No claim

Fixed Variable
Dividends No dividends dividends dividends No dividends

No voting No voting
Voting Rights rights rights Voting rights No voting rights

Risk Low risk Moderate risk High risk No risk

Cost Fixed interest Tax Treatment No fixed cost No cost

Interest Dividend No tax No tax

expense expense deduction deduction

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 5. Short long term financing

Preferred Common Retained

Criteria Debt Stock Stock Earnings

Priority of Second No payment

Payment First priority priority Last priority require

5.line credit agreement vs revolving credit agreement

A line of credit agreement and a revolving credit agreement are both types of credit arrangements, but
there are some key differences between them.

A line of credit agreement is a type of loan agreement that allows a borrower to access a set amount of
credit over a specified period. The borrower can draw down funds from the line of credit as needed, up to
the agreed-upon limit. Interest is only charged on the amount of credit that is actually used. Once the
borrower repays the amount borrowed, the available credit is replenished up to the limit.

A revolving credit agreement, on the other hand, is a credit agreement that allows a borrower to use
credit up to a specified limit, but with no set repayment schedule. The borrower can use and repay the
credit as often as they wish, as long as they stay within the credit limit. Interest is charged on the
outstanding balance, which changes as the borrower uses and repays the credit.

ক্রেডিট চু ক্তির একটি লাইন হল এক ধরনের ঋণ চু ক্তি যা একজন ঋণগ্রহীতাকে একটি নির্দি ষ্ট সময়ের মধ্যে একটি
নির্দিষ্ট পরিমাণ ক্রেডিট অ্যাক্সেস করতে দেয়। ঋণগ্রহীতা প্রয়োজন অনুযায়ী ক্রেডিট লাইন থেকে সম্মতিকৃ ত সীমা পর্যন্ত
তহবিল আঁকতে পারেন। সুদ শুধুমাত্র ব্যবহার করা হয় যে ক্রেডিট পরিমাণ উপর চার্জ করা হয়. একবার ঋণগ্রহীতা
ধার করা অর্থ পরিশোধ করলে, উপলব্ধ ক্রেডিট সীমা পর্যন্ত পুনরায় পূরণ করা হয়।

অন্যদিকে একটি ঘূর্ণায়মান ক্রেডিট চু ক্তি হল একটি ক্রেডিট চু ক্তি যা একজন ঋণগ্রহীতাকে একটি নির্দিষ্ট সীমা পর্যন্ত
ক্রেডিট ব্যবহার করতে দেয়, কিন্তু কোনো নির্দিষ্ট পরিশোধের সময়সূচী ছাড়াই। ঋণগ্রহীতা যতবার ক্রেডিট সীমার মধ্যে
থাকে ততক্ষণ ক্রেডিট ব্যবহার এবং পরিশোধ করতে পারে। বকেয়া ব্যালেন্সের উপর সুদ ধার্য করা হয়, যা ঋণগ্রহীতার
ক্রেডিট ব্যবহার ও পরিশোধ করার সাথে সাথে পরিবর্তি ত হয়।

In summary, the main differences between a line of credit agreement and a revolving credit agreement
are:

 Access to credit: A line of credit agreement allows the borrower to access a set amount of credit over a
specified period, while a revolving credit agreement allows the borrower to use credit up to a specified
limit as often as they wish.

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 5. Short long term financing
 Repayment: A line of credit agreement requires the borrower to repay the amount borrowed within a
specified period, while a revolving credit agreement has no set repayment schedule, as long as the
borrower stays within the credit limit.
 Interest charges: A line of credit agreement charges interest only on the amount of credit that is actually
used, while a revolving credit agreement charges interest on the outstanding balance.
6. What constitute Acceptable collateral

Acceptable collateral refers to assets or property that a borrower pledges to a lender as security for a
loan. The following are some common types of acceptable collateral:

1. Real estate: This includes land, homes, commercial buildings, and other types of real property.
2. Vehicles: Cars, trucks, boats, and other types of vehicles can be used as collateral.
3. Financial assets: Stocks, bonds, and other securities can be used as collateral.
4. Business assets: Equipment, inventory, and accounts receivable can be used as collateral for business
loans.
5. Personal assets: Jewelry, artwork, and other valuable personal items can be used as collateral.

It's important to note that the acceptability of collateral may vary depending on the lender and the type
of loan being sought. The value and condition of the collateral will also play a role in determining its
acceptability.

Secure Short-Term Financing:

1. Secured Loans: A secured loan is a type of loan that is backed by collateral, such as a car or property. In
the event that the borrower is unable to repay the loan, the lender can seize the collateral to recoup their
losses.
2. Asset-Based Financing: Asset-based financing involves using an asset, such as inventory or accounts
receivable, as collateral for a loan. This type of financing is often used by businesses to improve cash flow.
3. Invoice Financing: Invoice financing is a type of loan that allows businesses to borrow against outstanding
invoices. The lender provides a percentage of the invoice value upfront and collects payment from the
customer directly.
4. Equipment Financing: Equipment financing involves using equipment as collateral for a loan. This type of
financing is often used by businesses to purchase new equipment or upgrade existing equipment.
5. Real Estate Financing: Real estate financing involves using real estate as collateral for a loan. This type of
financing is often used by real estate investors to purchase properties.

Unsecured Short-Term Financing:

1. Personal Loans: A personal loan is a type of unsecured loan that is often used to cover unexpected
expenses, such as medical bills or home repairs.
2. Credit Cards: Credit cards are a type of unsecured financing that allow individuals to make purchases and
borrow money up to a certain limit. Interest rates on credit cards can be high, so it's important to pay off
the balance each month.
3. Lines of Credit: A line of credit is a type of unsecured financing that provides individuals with a set credit
limit. The borrower can draw on the line of credit as needed and only pay interest on the amount
borrowed.

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4. Payday Loans: Payday loans are short-term loans that are typically used to cover unexpected expenses.
However, they often come with high interest rates and fees.
5. Merchant Cash Advances: Merchant cash advances are a type of financing that are often used by small
businesses. The lender provides cash upfront in exchange for a percentage of the business's future credit
card sales. However, they often come with high fees and interest rates.

Trade credit refers to the practice of purchasing goods or services from a supplier and deferring payment
until a later date. In other words, it is the credit extended to a buyer by a supplier.

Trade credit is a spontaneous source of funds for a buyer because it does not require any formal
application or approval process. Instead, it is typically offered automatically by the supplier as part of their
normal business operations. This means that a buyer can obtain financing without having to go through
the time-consuming and often difficult process of applying for a loan or other type of financing.

Furthermore, trade credit can be an attractive option for buyers because it often comes with favorable
terms, such as a grace period before interest is charged or a discount for early payment. This can help
buyers manage their cash flow and improve their financial position.

Overall, trade credit from suppliers can be a convenient and cost-effective way for businesses to obtain
the funds they need to operate and grow.

Accruals refer to expenses that have been incurred but not yet paid or revenue that has been earned but
not yet received. In other words, it is the recognition of an expense or revenue in the accounting system
before the actual payment or receipt of cash.

Accruals are considered free debt because they do not involve any borrowing or financing from external
sources. They represent a form of financing that is provided by the company itself, rather than by
creditors or investors.

For example, if a company incurs an expense in December but does not pay the bill until January, the
expense is recorded as an accrual in December. This means that the company has recognized the expense
in its financial statements even though it has not yet paid for it.

Similarly, if a company provides services in December but does not receive payment until January, the
revenue is recorded as an accrual in December. This means that the company has recognized the revenue
in its financial statements even though it has not yet received the cash.

Overall, accruals are an important concept in accounting because they help to ensure that a company's
financial statements accurately reflect its financial position and performance, even if cash has not yet been
exchanged.

Internal sources of long-term financing are the funds that a company generates from within its own
operations. These sources include:

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 5. Short long term financing
1. Retained Earnings: Retained earnings are profits that a company has earned but not distributed to its
shareholders. These funds can be reinvested in the company's operations to finance growth and
expansion.
2. Depreciation: Depreciation is a non-cash expense that represents the decline in value of a company's
assets over time. The funds saved from not having to replace assets can be used for financing long-term
projects.
3. Sale of Assets: A company can generate long-term financing by selling assets that it no longer needs or
by liquidating assets that are not performing well.

External Sources of Long-Term Financing: External sources of long-term financing are the funds that a
company obtains from external sources such as banks, financial institutions, and investors. These sources
include:

1. Bank Loans: Bank loans are a common source of long-term financing. Companies can obtain loans from
banks for a specific period of time at a fixed or variable interest rate.
2. Bonds: Bonds are debt securities issued by companies to raise capital. Companies can issue bonds with a
fixed or variable interest rate and a specific maturity date.
3. Equity Financing: Equity financing involves selling shares of ownership in the company to investors. This
can include issuing stock or bringing on partners or investors who provide capital in exchange for a share
of ownership.
4. Venture Capital: Venture capital is a type of private equity financing that is provided to early-stage
companies with high growth potential. This funding is often provided by venture capital firms that
specialize in investing in high-risk, high-reward opportunities.
5. Crowdfunding: Crowdfunding is a relatively new way of financing that involves raising funds from a large
number of individuals through online platforms. This can include rewards-based crowdfunding or equity
crowdfunding.

The term of credit refers to the length of time that a borrower has to repay a loan or other form of credit.
It is the period during which the borrower is expected to make regular payments to the lender in order to
pay off the debt. The term of credit can vary depending on the type of loan or credit being used, and can
range from a few months to several years or more. The term of credit is an important consideration for
borrowers when choosing a financing option, as it can affect the amount of interest that they will have to
pay and the overall cost of borrowing.

1. COD: Cash on delivery. Payment is due at the time of delivery.

2. CBD: Cash before delivery. Payment must be received by the seller before the goods are shipped.
3. SDBL: Sight draft with bill of lading. Payment is due when the buyer receives the bill of lading, which is a
document that confirms the shipment of goods.
4. Net 7 day: Payment is due 7 days after the invoice date.
5. 2/10 net 30: A discount of 2% is offered if payment is made within 10 days of the invoice date. If not, the
full amount is due in 30 days.
6. 2/10 EOM net 30: A discount of 2% is offered if payment is made within 10 days after the end of the
month. If not, the full amount is due in 30 days