1) Introduction

NAME : Sumitra

2) Features
NAME: Jyotika

3) Types
NAME :Neha

4) Sources
NAME :Pravin

5) Merits

Name : Priyanka Divecha

INTRODUCTION

NAME : Sumitra Dayal

ROLL NO. 25036
UID : 1940206
CONTACT NO. 8767784120
INTRODUCTION

Short-term financing deals with raising of money required

for a shorter periods i.e. periods varying from a few days to
one year. There are, however, no rigid rules about the term. It
may sometimes exceed one year but still be called as short-
term finance.
What is Short Term Finance?
Short term finance refers to financing needs for a small
period normally less than a year. In businesses, it is
also known as working capital financing. This type of
financing is normally needed because of uneven flow
of cash into the business, the seasonal pattern of
business, etc. In most cases, it is used to finance all
types of inventory, accounts receivables etc. At times,
only specific one time orders of business are financed.
Characteristics of short term financing

Name : Jyotika A.Agarwal

Roll no : 25034
UID : 1940202
Contact number : 9619274215
Characteristics of short term financing
1. Timespan

The short-term financing has a very small repayment duration, usually from
six months to around 18 months.

2. Criteria

Any company that has been operating for a few years can take this financing.
Also, your organization may need to furnish a clean payment history to
qualify for it.

3. Collateral

Since it is designed to facilitate the small business owners and those who
require speedy cash, it does not require collateralizing of the assets
4. Sources
• It is generally raised from various sources such a bank credit, trade
credit, consumer credit etc.

5. It helps in meeting day to day financial need of the firm such as

purchase of raw material etc.
Types
NOT SUBMITTED

NAME : NEHA
Sources of Short-term Finance

Name : Pravin G Chandora

Roll no : 25037
UID : 1940219
Contact number : 9987248531/9619967325
 Sources of Short-term Finance
1. Trade Credit :
Just as a firm grants credit to its customers it can also get
credit from the manufacturers or wholesalers or suppliers. It
is known as trade or mercantile credit. The usual duration of
this credit ranges from 30 to 90 days. It is granted to the
company or firm on “Open account” without any security
except that of the goodwill and financial standing of the
buyer.

2. Accrued Expenses :
The expenses which have already been acknowledged in the
books before it has been paid are known as accrued expenses.
3. Bank Finance :
Corporate sector is very much dependent on the commercial
bank for fulfilling their short-term financial needs, a limited
portion of this need gets fulfilled by the trade credit, and the
excess requirement over it gets fulfilled by a commercial
bank. Bank credit has two forms, i.e., unsecured and secured
credit. Unsecured credits are those that are not covered by
collateral securities, and collateral securities cover secured
Credits.

4. Deferred Revenues :
Deferred revenue refers to a part of the firm’s income that
has not been acquired, but pre-payment has already received
by the customers.
5. Commercial Papers :
Issuing of commercial papers is also one of the most used sources of
financing now-a-days. These are the short-term notes describing that if a
company needs money, they can issue commercial papers. It is used for
financing of Trade credits, payroll and meeting additional short-term
liabilities and commercial paper ranges from 15 days to 1 year.

6. Letter of Credit :

The Letter of Credit shows the pledge of the buyer to the seller for
making the payment. This document is issued by the bank, safeguarding
the prompt and full payment to the seller. If the buyer fails to do so, the
bank becomes liable to pay the amount to the seller, for issuing a letter of
credit bank charges a percentage of the amount from the buyer and is
delivered against the pledge of securities.
MERITS :
Merits of Short term finance

1 • Shorter time for incurring interest

• Helps You Improve Your Credit

2 Rating

• You Pay Less Interest

3
1. Shorter time for incurring interest :

As short term loans need to be paid off within about a year,

there are lower total interest payments. Compared to long
term loans, the amount of interest paid is significantly less.

2. Helps You Improve Your Credit Rating

Short term loans are the lifesavers of smaller businesses or

individuals who suffer from less than stellar credit scores.
The requirements for such loans are generally easier to
meet, in part because such loans are usually for relatively
small amounts, as compared to the amount of money usually
borrowed on a long term basis.
3. You Pay Less Interest

These loans are considered less risky compared to long term

loans because of a shorter maturity date. The borrower’s
ability to repay a loan is less likely to change significantly
over a short frame of time. Thus, the time it takes for a
lender underwriting to process the loan is shorter. Thus, the
borrower can obtain the needed funds more quickly.
Demerits of Short Term Sources of Finance

Name :Devansh Badani

Roll no :25035.
UID :1940212
Contact number : 9673576133
Demerits of Short Term Sources of Finance
1. HIGHER INTEREST RATES

The biggest drawback to a short term finance is the interest

rate, which is higher—often a lot higher—than interest rates
for longer-term finance. The advantage of a long term finance
is a lower interest rate over a longer period of time.
The interest payments on top of paying back the short term
finance balance can lead to higher payments every month.
However , Keep in mind that with a short term loan, you’ll be
paying back the lender within a short period of time—which
means you’ll be paying the high interest for a shorter time than
with a long-term finance.
2. POTENTIAL DAMAGE TO CREDIT SCORE

While repaying a short term finance on time according to

your agreed upon schedule can be a significant boost to
your credit score, failing to do so can cause it to plummet.
An outstanding short term finance will increase your debt
to income ratio, causing your credit score to take a hit.
This can be damaging if you only have a little or good
credit history, and devastating to your future potential to
borrow if you already have poor credit.
Before taking out a short term finance, be honest with
yourself about your ability and discipline when it comes
to paying back the loan on time.
3. DEBT CYCLE

If company have a problem with spending more than company

can afford, taking out a short term personal loan because
companies are short on cash will only perpetuate the problem.
Some companies get caught in a cycle of making expensive
purchases and then finding themselves short on funds for the
necessities, forcing them to take out a high-cost loan.
Then repaying the loan puts another strain on their finances,
and if the excessive spending isn’t reigned in, they might need
another loan and will perpetuate a cycle of accruing and
relying on debt.
A short term finance is best for companies who are in an
unexpected emergency situation requiring instant access to
cash that couldn’t otherwise be spared.
4. Huge Risk :

It is expensive to make use of the short term finance for

making payments for any long term project. This is
because long term loans lock in the present rate of interest.
During general economic times, the rate of interest shall
rise slowly.
A number of short term loans for financing long term
projects will make a pay much higher rate of interest with
each of the loans. Thus the project’s cost will be increased.
If the business is not in a good state and it require to renew
the finance , then depending on many situations, it might
need to pay a higher rate of interest. It might also happen
that businesses are unable to renew that loan.
5. Impact On Daily Operations:

Late payments will make companies pay a huge penalties.

The rate of interest can also get increased on the short term
finance and the charges of late fees will add up. It may also
be requested to pay off the loan as early as possible.
Some people face difficulty to make such extra monthly
payments. Any payment increase can cause a default and
you may come at any credit risk. If you try to pay off these
loans it can also hinder the performance on other on-going
loans or other responsibilities.
Company will get into further debt and it’s situation would
not improve. If a company fall into more debt unwanted
stress will occur on it’s daily operations.
Suggestions and conclusion

NOT SUBMITTED
NAME : Rupendra