Short
Term Finance
Short
term finance is defined as money raised for a period
of less than one year through loan. This is required
for meeting the day to day expenses of business such as
payment of wages, bills, unforseen expenses, seasonal peaks
of business etc.
The
best known and most popular sources of raising loan
or money are as under.
(i)
Trade Credit or open book account: Trade credit is the least
expensive method of raising capital. Under this arrangment,
a firm or company buys material, equipment and other needs
from a supplier on a promise to pay the bill at a later
date. Although, trade credit is not thought of a loan, yet
the fact is that the seller is financing the buyer for a
certian time period. Trade credit is granted on the basis
of financial standing and good will of the company in the
market.
(ii)
Bank Overdraft. bank overdraft is the best know and
most popular source of raising short term funds. An overdraft
is an agreement ith the bank by hich the customer may draw
more then his deposit in current account upto a certain
limit and for a specified period. Interest is charged daily
on the outstanding amount. The overdraft facility is given
against the security of an asset.
(iii)
Cash Credit. It is the most favourite method of short
term loan borrowing by the industrial and commercial concerns.
The bank allows a company unit to borrow money upto a certain
limit by pledging the goods with it. The goods are released
in full or in parts on getting payment. the interest rate
is charged on the amount of money actually withdrawn and
not on the entire amount of the sanctioned loan. Cash credit
is a loan on a comparatively long and on regular basis.
(iv)
Billing of lading. A bill of lading is a receipt
issued by a shipping copany for the goods to be transported
for the seller to the purchaser. The purchaser can get short
term loan from the bank by offering bill of lading as security
for the loan.
Equity Loan 