Question

Please write at least three well composed paragraphs that describe examples of business financing that would support short-term assets. What kind of financing would be appropriate for supporting long-term assets? Please explain your answers.

Answer 1

Business Financing is done by the companies to finance its short and long-term assets. Business financing is crucial in nature for the companies as it decides how much funds are required for the short term purposes and how much should be locked up for long-term scenarios. Assets are financed by these short and long-term borrowings that the company’s get and try to maximize these finances by making hefty profits for their firms.

In case of short-term assets, short-term financing is the way through which the companies raise its funds. The reason why business houses look out at short-term funds for financing the short-term assets as it gives them a smaller window in which they can maximize their return and pay off their loans at the stipulated period of time. An example can be bank overdraft (less than a year) which implies it is a short-term liability through which companies can produce goods and convert them into receivables which is a short-term asset for the firm.

In case of long-term assets, long-term financing is the route. The reason again is obvious; in this kind of financing companies do look out at the future growth of the companies which is heavily dependent on the long-term production of the firms. Long-term funds are borrowed for a period more than 1 Year preferably 3 or 5 years. In this scenario, companies do pay off their interest to the fund holders and generate revenues which maximizes the overall return for the organization.