Difference between Short term and Long term financing
Corporate Finance
Management Notes
Short-term financing refers to business or personal loans that have a shorter-than
S.No. | Short Term Financing | Long term Financing |
1. | Short-term financing refers to business or personal loans that have a shorter-than |
Long-term financing refers to business or personal loans that have Longer time span for repaying the loan, more than a year. |
2. | Fund raised from this financing is generally less costly than long term financing because:
|
Fund raised from this financing is more costly than short term financing because:
|
3. | It is more flexible than other financing because amount of fund raised using sources of this financing can be changed as per requirement. | It is less flexible than other financing because amount of fund raised using sources of this financing cannot be changed as per requirement.Although with a repayment provision , long term debt can be repaid earlier,prepayment penalties may be charged. |
4. | Short term loan agreements are less restrictive than long term loan agreement. | Long term loan agreements contain restrictive provisions or covenants which constrain the firm’s future actions/activities. |
5. | Short term loans may not require collateral or security. | Long term loans require specific assets as collateral or security. |
6. | It is more riskier than other financing because
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It is less riskier than other financing because
|
7. | Fund raised from this financing should not be used to acquire fixed assets like land and building,plant , machinery,furniture,vehicles,etc. rather it should be used to increase level of current assets and working capital. | Fund raised from long term sources can be used to finance any type of assets like fixed assets or current assets. |
8. | Companies can only raise limited amount of funds by the help of this financing. | Companies can raise large amount of fund by the help of this financing. |
Other Posts:
Types of Lease , Lease Financing
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