1 PEMBELANJAAN PERUSAHAAN LECTURE 4a – SOURCES OF SHORT TERM FINANCING

PP/MB-IPB/10 2 Short-Term Financing Alternative financing policies Advantages and disadvantages Advantages and disadvantages Sources of short-term financing Cost of each source of financing Cost of each source of financing Choosing a bank

PP/MB-IPB/10 3 Advantages and Disadvantages of Short-term Financing Speed : faster than long-term credit Flexibility : agreement generally less restrictive and if the firm’s business is seasonal, it may not want to commit itself to long-term debt for three reasons: 1. Floating costs are higher for long-term 2. Repayment penalties on long-term debt can be expensive, and 3. Long-term loan agreements contain provisions, which constrain the firm’s future actions.

PP/MB-IPB/10 4 Advantages and Disadvantages of Short-term Financing (Cont ’ d) Cost: interest rates are generally lower on short- term than long-term debt Risk: short-term financing is at disadvantage to long-term, because of the extra risk that it carries The lender can demand payment on short notice The cost of the loan will increase if interest rates increase

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