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Overview of Short-Term Financing > Short-Term Financing
Short-Term Financing
• Short-Term Loans
• Credit Cards
• Factoring Accounts Receivable
• Commercial Paper
• Secured vs. Unsecured Funding
• Family and Friends
• Commercial Banks
• Trade Credit or Accounts Payable
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Overview of Short-Term Financing > Short-Term Financing
Short-Term Loans
• Longer term funding is supplied by bonds and equity.
• Convenience is main benefit of a credit card to a business or entrepreneur .
• Venture capitalists use bridge loans to "bridge" cash flow gaps between
successive major private equity financing terms.
Payday Loan store
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Overview of Short-Term Financing > Short-Term Financing
Credit Cards
• The issuer of the card creates a revolving account and grants a line of credit to
the consumer (or the user) from which the user can borrow money for payment to
a merchant or as a cash advance to the user.
• The main benefit to each customer is convenience. Credit cards allow small shortterm loans to be quickly made to a customer who need not calculate a balance
remaining before every transaction, provided the total charges do not exceed the
maximum credit line for the card.
• Costs to users include high interest rates and complex fee structures.
Credit card
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Overview of Short-Term Financing > Short-Term Financing
Factoring Accounts Receivable
• Debt factoring is also used as a financial instrument to provide better cash flow
control especially if a company currently has a lot of accounts receivables with
different credit terms to manage.
• The three parties directly involved in factoring are: the one who sells the
receivable, the debtor (the account debtor, or customer of the seller), and the
factor.
• There are two principal methods of factoring: recourse and non-recourse. Under
recourse factoring, the client is not protected against the risk of bad debts. Under
non-recourse factoring, the factor assumes the entire credit risk.
Money
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Overview of Short-Term Financing > Short-Term Financing
Commercial Paper
• There are two methods of issuing paper. The issuer can market the securities
directly to a buy and hold investor such as most money market funds.
Alternatively, it can sell the paper to a dealer, who then sells the paper in the
market.
• Commercial paper is a lower cost alternative to a line of credit with a bank. Once
a business becomes established, and builds a high credit rating, it is often
cheaper to draw on a commercial paper than on a bank line of credit.
• Asset-Backed Commercial Paper (ABCP) is a form of commercial paper that is
collateralized by other financial assets.
US Commercial Paper Weekly 2001-2008
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Overview of Short-Term Financing > Short-Term Financing
Secured vs. Unsecured Funding
• A loan is a type of debt. Like all debt instruments, a loan entails the redistribution
of financial assets over time, between the lender and the borrower.
• The financial institution, however, is given security — a lien on the title to the
house — until the mortgage is paid off in full. If the borrower defaults on the loan,
the bank would have the legal right to repossess the house and sell it, to recover
sums owed to it.
• Unsecured loans are monetary loans that are not secured against the borrower's
assets. The interest rates applicable to these different forms may vary depending
on the lender and the borrower.
Debt
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Overview of Short-Term Financing > Short-Term Financing
Family and Friends
• Somewhat similar to raising money from family and friends is person-to-person
lending. Person-to-person lending is a certain breed of financial transaction which
occurs directly between individuals or "peers" without the intermediation of a
traditional financial institution.
• Lending money and supplies to friends, family, and community members predates
formalized financial institutions, but in its modern form, peer-to-peer lending is a
by-product of Internet technologies, especially Web 2.0.
• In a particular model of P2P lending known as "family and friend lending", the
lender lends money to a borrower based on their pre-existing personal, family, or
business relationship.
Family
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Overview of Short-Term Financing > Short-Term Financing
Commercial Banks
• Commercial banks may provide a secured loan, which are monetary loans that
have borrower collateral pledged against their repayment.
• Commercial banks may also provide unsecured loans, which are monetary loans
that are not secured against the borrower's assets (i.e., no collateral is involved).
• Accessing funds through a commercial bank is a very common way of accessing
funds when in need, particularly in the case of small or entrepreneurial
businesses.
Commercial banks
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Overview of Short-Term Financing > Short-Term Financing
Trade Credit or Accounts Payable
• There are many forms of trade credit in common use; often industry-specific.
They all benefit from their collaboration to make efficient use of capital to
accomplish various business objectives.
• An accounts payable is recorded in the Account Payable sub-ledger at the time
an invoice is vouchered for payment.
• Commonly, a supplier will ship a product, issue an invoice, and collect payment
later, which describes a cash conversion cycle, or a period of time during which
the supplier has already paid for raw materials but hasn't been paid in return by
the final customer.
Credit
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Appendix
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Overview of Short-Term Financing
Key terms
• Assets Any property or object of value that one possesses, usually considered as applicable to the payment of one's debts.
• benchmark A standard by which something is evaluated or measured.
• collateral A security or guarantee (usually an asset) pledged for the repayment of a loan if one cannot procure enough funds to
repay. (Originally supplied as "accompanying" security. )
• collateral A security or guarantee (usually an asset) pledged for the repayment of a loan if one cannot procure enough funds to
repay. (Originally supplied as "accompanying" security. )
• credit card A plastic card with a magnetic strip or an embedded microchip connected to a credit account and used to buy goods
or services. It's like a debit card, but money comes not from your personal bank account, but the bank lends money for the
purchase based on the credit limit. Credit limit is determined by the income and credit history. Bank charge APR (annual
percentage rate) for using of money.
• factoring A financial transaction whereby a business sells its accounts receivable to a third party (called a factor) at a discount.
• financial institution In financial economics, a financial institution is an institution that provides financial services for its clients or
members.
• London Interbank Offered Rate the average interest rate estimated by leading financial instiutions in London that they would be
charged if borrowing from others
• money market A market for trading short-term debt instruments, such as treasury bills, commercial paper, bankers'
acceptances, and certificates of deposit.
• supplier One who supplies; a provider.
• venture capital money invested in an innovative enterprise in which both the potential for profit and the risk of loss are
considerable.
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Overview of Short-Term Financing
Credit card
A credit card is a payment card issued to users as a system of payment.
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Overview of Short-Term Financing
Family
Asking friends and families to invest is another common way that start-ups are funded.
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Overview of Short-Term Financing
Weekly Commercial Paper Outstandings
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Overview of Short-Term Financing
US Commercial Paper Weekly 2001-2008
United States Commercial Paper outstanding at end of each week from 3 January 2001 to 29 October 2008. Vertical scale shows debt in billions
(thousands of millions) of dollars, horizontal scale shows years. Each blue marker indicates commercial paper outstanding at that date which matures
after one week.
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Overview of Short-Term Financing
US Commercial Paper 2001-2007
United States Commercial Paper outstanding at end of each year 2001 to 2007. Vertical scale shows debt in millions of dollars, horizontal scale shows
years. All markers indicate commercial paper outstanding, maturing after December 31. Circles on blue line indicate Total commercial paper; triangles
diamonds on pink line indicate SEC rule 2a-7 tier-1 commercial paper; triangles on blue line indicate Asset-backed commercial paper; squares on yellow
line indicate SEC rule 2a-7 tier-2 commercial paper.
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Overview of Short-Term Financing
Debt
A loan is one type of debt.
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Overview of Short-Term Financing
Money
Factoring makes it possible for a business to readily convert a substantial portion of its accounts receivable into cash.
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Overview of Short-Term Financing
Payday Loan store
Payday loan stores offer short term loans
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Overview of Short-Term Financing
Credit
Accounts Payable (also known as Creditors) is money owed by a business to its suppliers.
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Overview of Short-Term Financing
Commercial banks
A commercial bank (or business bank) is a type of financial institution and intermediary.
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Overview of Short-Term Financing
When a lender provides a short-term unsecured loan to be repaid
at the borrower's next pay day, it is called:
A) Overdraft
B) Credit card
C) Payday loan
D) Bridge loan
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Overview of Short-Term Financing
When a lender provides a short-term unsecured loan to be repaid
at the borrower's next pay day, it is called:
A) Overdraft
B) Credit card
C) Payday loan
D) Bridge loan
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Overview of Short-Term Financing
The greatest value of credit cards to merchants is:
A) The issuing bank commits to payment
B) There are no fees
C) There are no fixed costs to the merchant
D) There are no risks
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Overview of Short-Term Financing
The greatest value of credit cards to merchants is:
A) The issuing bank commits to payment
B) There are no fees
C) There are no fixed costs to the merchant
D) There are no risks
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Overview of Short-Term Financing
In what type of factoring does the factor makes no advance on the
purchased accounts?
A) Advance factoring
B) Reserve factoring
C) Maturity factoring
D) Non-recourse factoring
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Overview of Short-Term Financing
In what type of factoring does the factor makes no advance on the
purchased accounts?
A) Advance factoring
B) Reserve factoring
C) Maturity factoring
D) Non-recourse factoring
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Overview of Short-Term Financing
All of the following are advantages of commercial paper, EXCEPT:
A) Low borrowing cost
B) High credit limit
C) Term flexiblity
D) Liquidity options
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Overview of Short-Term Financing
All of the following are advantages of commercial paper, EXCEPT:
A) Low borrowing cost
B) High credit limit
C) Term flexiblity
D) Liquidity options
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Overview of Short-Term Financing
What happens if the borrower defaults on paying back a secured
loan, and the sale of the collateral is not enough to pay back the
remainder of the loan?
A) The loan is forgiven
B) The creditor can seize other assets
C) The creditor obtains a defficiency judgement
D) The creditor can employ the debtor
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Overview of Short-Term Financing
What happens if the borrower defaults on paying back a secured
loan, and the sale of the collateral is not enough to pay back the
remainder of the loan?
A) The loan is forgiven
B) The creditor can seize other assets
C) The creditor obtains a defficiency judgement
D) The creditor can employ the debtor
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Overview of Short-Term Financing
Which of the following is NOT an advantage of person to person
lending?
A) Below market lending rates
B) Lower risk of default
C) Simple compliance to legal regulations
D) Higher returns for lenders
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Overview of Short-Term Financing
Which of the following is NOT an advantage of person to person
lending?
A) Below market lending rates
B) Lower risk of default
C) Simple compliance to legal regulations
D) Higher returns for lenders
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Overview of Short-Term Financing
What happens when an overdraft occurs and the positive balance
exceeds the agreed terms?
A) The collateral is seized
B) Lower interest rate applies
C) Additional fees may be charged
D) Interest is normally charged at agreed upon rate
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Overview of Short-Term Financing
What happens when an overdraft occurs and the positive balance
exceeds the agreed terms?
A) The collateral is seized
B) Lower interest rate applies
C) Additional fees may be charged
D) Interest is normally charged at agreed upon rate
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Overview of Short-Term Financing
The process of the invoice being received by the purchaser, then
matched to the packing slip and ultimately paid is referred to as:
A) Accounts payable
B) Three-way match
C) ePayables
D) Expense payable
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Overview of Short-Term Financing
The process of the invoice being received by the purchaser, then
matched to the packing slip and ultimately paid is referred to as:
A) Accounts payable
B) Three-way match
C) ePayables
D) Expense payable
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Overview of Short-Term Financing
Attribution
• Wikipedia. "Promissory note." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Promissory_note
• Wikipedia. "Commercial paper." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Commercial_paper
• Wikipedia. "Asset-backed commercial paper." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Asset-backed_commercial_paper
• Wiktionary. "money market." CC BY-SA 3.0 http://en.wiktionary.org/wiki/money+market
• Wikispaces. "accounts-receivable-3737 - Utilizing Accounts Receivable Factoring to Improve Your Cash Flow." CC BY-SA
http://accounts-receivable-3737.wikispaces.com/Utilizing+Accounts+Receivable+Factoring+to+Improve+Your+Cash+Flow
• Wikipedia. "Factoring (finance)." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Factoring_(finance)
• Wikispaces. "invoicefactoringusa - Avoid IRS Liens and Penalties by Accounts Receivable Factoring." CC BY-SA
http://invoicefactoringusa.wikispaces.com/Avoid+IRS+Liens+and+Penalties+by+Accounts+Receivable+Factoring
• Wiktionary. "factoring." CC BY-SA 3.0 http://en.wiktionary.org/wiki/factoring
• Wikipedia. "Credit card." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Credit_card
• Wiktionary. "credit card." CC BY-SA 3.0 http://en.wiktionary.org/wiki/credit+card
• Wikipedia. "Commercial bank." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Commercial_bank
• Wiktionary. "collateral." CC BY-SA 3.0 http://en.wiktionary.org/wiki/collateral
• Wikipedia. "Trade credit." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Trade_credit
• Wikipedia. "Accounts payable." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Accounts_payable
• Wikipedia. "Credit (finance)." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Credit_(finance)#Trade_credit
• Wiktionary. "supplier." CC BY-SA 3.0 http://en.wiktionary.org/wiki/supplier
• Wikipedia. "Person-to-person lending." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Person-to-person_lending
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Overview of Short-Term Financing
• Connexions. "Budgets." CC BY 3.0 http://cnx.org/content/m35492/latest/?collection=col11227/1.4
• Wikipedia. "financial institution." CC BY-SA 3.0 http://en.wikipedia.org/wiki/financial%20institution
• Wikipedia. "Loan." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Loan
• Connexions. "Budgets." CC BY 3.0 http://cnx.org/content/m35492/latest/?collection=col11227/1.4
• Wikipedia. "Secured loan." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Secured_loan
• Wikipedia. "Unsecured debt." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Unsecured_debt
• Wikipedia. "Payday loans." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Payday_loans
• Wikipedia. "Assets." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Assets
• Wikipedia. "Payday loan." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Payday_loan
• Wikipedia. "Overdraft." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Overdraft
• Wikipedia. "Credit card." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Credit_card
• Wikipedia. "Bridge loan." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Bridge_loan
• Wikipedia. "Refund anticipation loan." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Refund_anticipation_loan
• Wikipedia. "Money market." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Money_market
• Wikipedia. "London Interbank Offered Rate." CC BY-SA 3.0 http://en.wikipedia.org/wiki/London_Interbank_Offered_Rate
• Wiktionary. "collateral." CC BY-SA 3.0 http://en.wiktionary.org/wiki/collateral
• Wiktionary. "benchmark." CC BY-SA 3.0 http://en.wiktionary.org/wiki/benchmark
• Wiktionary. "venture capital." CC BY-SA 3.0 http://en.wiktionary.org/wiki/venture+capital
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