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What is the difference between a short and long term loan?

Short-term and long-term loans may refer to the time period in which a loan is paid back. Short term loans are generally to be repaid within a few months or a year or so. Long-term loan repayments can last for a few years up to several years

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What are the benefits / drawbacks of a short term loan?

Usually a lower rate of interest than an overdraft. Money borrowed is a fixed and agreed amount and cannot be varied as and when required, as in the case of an overdraft. The whole of the agreed amount must be drawn and interest paid in full

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What are the benefits / drawbacks of a long term loan?

A fixed sum of money can be borrowed for specific time. Interest must be paid on the money borrowed

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What are debentures?

Debentures are another type of long-term loan that is available to companies They are most commonly known as bonds

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What are benefits and drawbacks of debentures?

Large amounts of money can be raised. A fixed amount of interest must be paid to bondholders each year whether the business is profitable or not

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What is factoring?

For larger firms it is possible to let a debt factoring company buy problem debts.

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What are benefits / drawbacks of factoring?

The business receives a lesser amount than the original debt but it receives it promptly, it can now spend this cash. Not suitable for a start up business.

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What is trade credit?

A business buys from its suppliers and pays at a later date in effect short term interest-free credit.

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What are benefits / drawbacks of trade credit?

Useful short term source of finance to help manage cash flow. May become a credit risk

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