which of the following correctly describes short term financing

which of the following correctly describes short term financing

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Short-term financing refers to borrowing or credit arrangements that are typically repaid within a year. It is commonly used by businesses and individuals to manage immediate financial needs. Here are some key characteristics that correctly describe short-term financing:

Quick Access to Funds

Short-term financing provides businesses and individuals with quick access to funds, helping them cover urgent expenses such as payroll, inventory purchases, or emergency costs.

 Lower Borrowing Amounts

Unlike long-term loans, short-term financing usually involves smaller borrowing amounts, making it easier to repay within a short period.

 Higher Interest Rates

Since short-term loans are repaid quickly, they often come with higher interest rates compared to long-term financing options. Lenders charge these rates to compensate for the short repayment period.

 Various Forms of Credit

Short-term financing can take different forms, including:

• Lines of credit: Businesses can withdraw funds as needed.


• Trade credit: Suppliers allow delayed payment for purchases.


• Short-term loans: Fixed-amount loans with a repayment term of less than a year.

Used for Immediate Financial Needs

Companies and individuals use short-term financing to cover temporary cash flow gaps, handle seasonal fluctuations, or finance small-scale projects.

Understanding short-term financing is crucial for making informed financial decisions. Whether for business or personal use, it provides a practical way to manage short-term expenses effectively.

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