What Is Short-Term, Near-Term Finance?
A company needs short-term financing to meet operating needs, such as paying for the cost of goods sold, salaries and administrative needs. Short-term financing options often involve bonds, equity products and short-term loans.
Other People Are Reading
-
Definition
-
Short-term financing is a business practice that helps senior management meet corporate operating needs by seeking loans maturing in one year or less. Loan maturity is the date by which a borrower must repay a loan.
SIgnificance
-
Short-term or near-term financing plays a pivotal role in modern economies. A company may be unable to operate in the next three or six months if it cannot raise funds from external sources. This is because customers generally do not pay for goods on delivery.
-
Types
-
Types of short-term financing products vary by location, financing needs, company and legal requirements. The most common near-term financing products include loans, commercial papers, lines of credit and bank overdraft agreements.
Equity
-
A firm can raise near-term cash by selling equity shares on securities exchanges. A buyer of equity, otherwise known as a shareholder, may receive regular dividend payments and makes profits when share prices increase.
Debt
-
A company can also raise cash for short-term operating needs by selling bonds on financial markets. A buyer of corporate bonds, or bondholder, receives periodic interest payments.
-
