Question

What argument would you use to persuade a banker to finance a portion of your current assets with a long term loan?

Answer 1

currents assets can be classified as temporary (i.e. Seasonal) or permanent.  a portion of my current assets is permanent, which can be defined as the accounts receivable, inventory and base level of cash and can be determined by their low point through several sales cycles. Whereas the current assets that are temporary are sudden increases in the accounts receivables and inventory due to spikes in sales.

using the above mentioned currents assets classification we can come up with a strategy which that helps us in determining the best way to finance the a portion of my current assets.

since the levels of my permanent currents assets are high and given the nature of my permanent current assets they can be financed with either short term or long term financing. but if we consider a risk/return trade off, although a short term loan typically cost less than a long term loan there is a greater risk associated with it. Since short term loan is more sensitive to changing interest rates( i.e.e interest rate risk). Hence we can make a strategy to use a long term loan to finance a portion of the current assets which are permanent in nature.