Question

What are the reasons and benefits of short term financing? Disadvantages?

Answer 1

Reasons of short term financing is related to need of the working capital which is fulfilled by the short-term financing and it is a very quick method of generation of money and it is also used for the short duration and hence it will be helping the business in order to have a better amount of liquidity so short term finance will help in carrying out the day-to-day routine of the business.

Benefits associated with short term financing is that it will be helping in appropriate liquidity and it will also help in carrying out day to day activity and working capital needs and it will help the business in order to segregate its long-term needs from short term needs.

Disadvantages related to short term financing is that Short-term financing will mean that the business will also have to repay its obligation in the short amount of time so that can lead to liquidity risk with and that can adversely impact the the flexibility of the business in the short run.