examples of short and long term finance, also state possible pros and cons of examples.
please could someone help me out, point me in the right direction or give me links to helpful websites.
thank you
Short-term finance refers to funding that is required for a period of up to one year, which typically includes managing day-to-day operations, working capital needs, and fulfilling immediate financial obligations. On the other hand, long-term finance covers funds needed for a period exceeding one year, typically for investments in assets, capital projects, and business expansion.
Examples of short-term finance:
1. Trade credit: This involves buying goods or services and delaying payment until an agreed-upon future date. This is a common form of short-term finance provided by suppliers to their customers.
Pros: Provides flexibility for businesses to manage cash flow and meet short-term obligations without immediate cash payment.
Cons: May result in higher costs due to interest or late payment penalties.
2. Bank overdrafts: An overdraft facility allows businesses to withdraw more money from their bank account than what is available, up to a specified limit.
Pros: Offers quick access to funds as needed, with interest charged only on the amount used.
Cons: Interest rates can be high, and there may be additional fees or penalties for exceeding the agreed overdraft limit.
Examples of long-term finance:
1. Bank loans: Businesses can secure loans from banks or financial institutions for a fixed period, often with a repayment schedule spanning several years.
Pros: Provides substantial capital for long-term investments, with fixed interest rates and structured repayment plans.
Cons: Requires collateral or a strong credit history, and interest charges can increase the overall cost of financing.
2. Equity financing: This involves raising funds by selling shares or ownership stakes in the company to external investors.
Pros: Does not require repayment like loans and can bring in significant capital for business expansion.
Cons: Dilution of ownership and control, as investors gain a share of the company and might expect a say in decision-making.
To find more detailed information, it could be helpful to visit reputable financial websites such as Investopedia (www.investopedia.com), The Balance (www.thebalance.com), or Entrepreneur (www.entrepreneur.com). These sites offer valuable resources, explanations, and examples relating to finance and business management.