What Are Short-Term Bank Notes?

Clothing stores often use short-term bank notes to buy seasonal inventory.

A short-term bank note is simply a short-term loan made at a bank. Use of the term "note" rather than "loan" is common when referring to the loan document itself or when describing a bank's holdings.

Definition of Notes

According to "Standard and Poor's Dictionary of Financial Terms," a note is simply a promise to repay a debt on or before a certain date and to pay interest during the period of the loan. A familiar example is a U.S. Treasury note, where the U.S. government promises to pay the holder the principal plus interest according to a predetermined schedule.

Short Term

In the context of bank notes, short term refers to any period of less than a year. Short-term business notes have a 90-day period. In other contexts, the term can have different meanings. For example, in bond markets the term refers to a period of two years.

Commercial Uses

Short-term bank notes are a common mechanism for providing stability in industries with seasonal cycles. For example, in "Commercial Lending," author George E. Ruth describes how a hardware store might use a short-term bank note to buy seasonal merchandise, like lawn mowers.

Certificates of Deposit

A certificate of deposit, or CD, is also considered a short-term bank note. In this case, however, you are loaning money to the bank, who promises to repay the amount plus interest.

References

• "Standard & Poor's Dictionary of Financial Terms"; Virginia B. Morris and Kenneth M. Morris; 2007
• "The Handbook Of International Financial Terms"; Peter Moles and Nicholas Terry; 1997
• "Commercial Lending"; George E. Ruth; 1999
• "Bond Evaluation, Selection, and Management"; R. Stafford Johnson; 2010