SH0RT-TERM FINANCING TWO MAJOR ASPECTS: 1. The types of unsecured short-term loan financing available the company.

These are financing available to support general capital needs and are not necessarily tied up to a specific asset either in the use of funds or subsequent repayment. 2. Financing of specific current assets, primarily accounts receivable inventory. There rae are various financing arrangements which are actually premised on repayment through eventual liquidations of generation of new working capital. UNSECURED SH0RT-TERM FINANCING MAJOR SOURCES: I.SPONTANEOUS SOURCES OF CREDIT a. Accrued payables on deferred payments on current expenses/obligations arising fron operations. b. Trade credit II. NEGOTIATED CREDIT A. Short-term loans B. Money market credit

ACCRUED PAYABLE A type of short-term financing which is strictly internal can be generated by the company by the way of (a.)normal deferred payment agreements for its operational expenses; and (b) funds withheld in transaction wherein the company acts a collection agent for the government. TRADE CREDIT CATEGORY OF BASIC TRADE ARRANGEMENT: 1. No credit allowed: Cash Before Delivery (CBD) or Cash On Delivery (COD) 2. Net period credit: no discount 3. Net period credit: with discount
Annual cost of cash discount foregone = cash discount (%) 100% - cash discount (%) X 365 days cash period (days) discount period

SHORT-TERM LOANS Are negotiated by the company with financial institution. Loans can be furthere classified into secured and unsecured loans. BASIC TYPE OF UNSECURED SHORT-TERM LOANS a. b. c. d. Single loan transactions Line credit Stand- by commitments Revolving credits

Single loan transactions. A company may need financing only for a particular special transaction. Line of Credit This is a credit facility granted by the bank to a costumer of acceptable risk, specifying the maximum amount of cumulative loan availment which the costumer can make. Stand-by Commitment

The bank and the borrower enter into a binding contract in which the bank commits to lend a fixed amount within a certain period of time. REVOLVING CREDIT The revolving credit facility combines the features of credit line and stand-by commitment. BANK POLICIES FOR GRANTING SHORT-TERM LOANS THREE GENERAL CRITERIA: 1. The credit risk of borrower integrity of management and the capacity to pay loan from the business operations. 2. The policy of the bank on the degree of lending commitment which it should make its clients; 3. Asset portfolio considerations-allocation of risk assets by industry and type of instrument profitability aspects. SECURED SHORT-TERM FINANCING Banks and finance companies offer short-term credit facilities which are based on specific assets. These credit facilities are commonly called asset- based finance which can be classified into (a) equipment finance (b) commercial finance and (c.) factoring Commercial Finance- includes all loans secured by the accounts receivable or inventory. Factoring of accounts receivables One remaining asset-based financing scheme available to the company is to sell its accounts receivable to a financing company or factor. Under this arrangement, the lender : (a.) advances a proportion of the total amount of accounts receivable to the company; (b) takes over the billing and collection for the factored accounts; and (c) may or may not assume the risk of bad debt losses.