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R
Rishi Dodeja

1) Trade credits and short term loans are the most suitable types of short term financing for small and medium enterprises (SMEs) as they help satisfy SMEs' short term monetary needs efficiently. 2) Trade credits do not require interest payments but the creditor's belief in the debtor's ability to repay is important. Creditors may also offer cash discounts. 3) Short term loans can be secured or unsecured depending on assets, with more security allowing higher chances of financing. Banks also track loan utilization.

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Short term financing (slide 1) Of or relating to business assets that are expected to be converted to cash within one year and to business liabilities that are due within one year. A loan scheduled to be repaid in less than a year . Short-term loan is, as the name suggests,a loan that must be repaid within a year or less, with interest. It is not revolving in nature and has a fixed repayment period. (definitions from ppt) 1. Used for an immediate recurring payment to be made. Not paying it leads to a trade deficit 2. Quick liquidity, short period of time <1 year 3. Adequate to finance smaller businesses 4. Can be secured or unsecured in nature Uses of short term financing (2) Quick Liquidity Immediate funds. Fulfils working capital requirements Works to bridge financial gaps Meet tight deadlines Cash Credit (slide3) A cash credit is a short-term cash loan to a company which a bank provides,only after the required security is given. Once a security has been given, the business receives the loan which can be drawn up to a certain specified amount. 1. Secured loans the security can be a tangible asset,such as stock in hand, raw materials. 2. Interest is charged only on the utilized amount 3. The rate of interest charged by loan on cash credit is very high 4. It runs like a current account except that the money that can be withdrawn from this account is not restrictedto the amount deposited the account holder is permittedto withdraw a certain sum called "limit" or "credit facility" Trade Credit (slide 3) Trade credit is the credit extended by suppliers who let you buy now and pay at a later date. Any time you take delivery of materials, equipment or other valuables without paying cash on the spot, you're using trade credit.(same definition as the ppt) 1. Open account. (like how we have with bhavani) no legal obligations and is unsecured. 2. Bills receivable is generally secured and legally obligates the party to pay up, secured. 3. Credit terms( cash discount,time for which cash discount can b availed,period of trade cred) 4. No interest for the parties involved, only cost occurs if there is a trade discount. 5. Criteria for creditors is the credit worthiness of debtors Bridge loan. (4) A short-term loan that is used until a person or company secures permanent financing or removes an existing obligation. This type of financing allows the user to meet current obligations by providing immediate cash flow. 1. Bridge loans are for a max period of 90 days 2. Can be unsecured or secured 3. Eg- property deals Overdraft. (5)
Overdraft is an instant extension of credit from a lending institution. When a company has an overdraft arrangement with a bank, it can draw down or transmit cash from its account beyond the available balance. It is also revolving in nature. (same definition as the ppt) 1. Must have a Current a/c with the bank, can borrow after it hits 0 up to the limit agreed b/w them. 2. Interest at specific rate for period of overdrawn time only. 3. Bank can charge an amt even without o/d facility being used. Letter of Credit (6) A letter of credit is a document issued by a third party that guarantees payment for goods or services when the seller provides acceptable documentation. A letter issued by a bank to another bank (especially one in a different country) to serve as a guarantee for payments made to a specified person under specified conditions. 1. Issued from the buyers bank to seller/’s bank in case buyer cannot oblige to pay. 2. LoC can act as a security and is given with the BoE. 3. Final financing is in fact done by the buyer itself and bank assumes responsibility for the bill period. 4. Done only after the importer is sure that the exporter has met with all the conditions. Short term credit (7) • Money that is lent for a short time, usually less than one year. • A loan scheduled to be repaid in less than a year . • When your business doesn't qualify for a line of credit from a bank, it might still have success in obtaining money in the form of a one-time, short-term loan to finance the temporary working capital needs. Bill of Exhange (8) A bill of exchange is an unconditional order in writing, addressed by a person to another, signed, requiring the person to whom it is addressed to; to pay, on demand. a sum in money or to the order of a specified person or bearer. 1. A bill drawn that has pre set conditions like maturity, amount & interest. 2. If seller wants the money before maturity he will provide it to a bank. 3. Said bank will pay money to the creditor at a discount, bank will also collect money from the debtor, charging a discount of their own to the creditor.
Importance of boe In short term financing? Bills of exchange have a great deal of importance within any kind of short term financing because it can act to the aid or a debtor who might not have liquid cash at hand, in the short term he can purchase goods against a bill and pay back at the maturity of the bill or before it. There is no interest to be paid (in most cases) and this kind of short term financing is generally unsecured, has minimal paper work. Extremely useful for people who carry out international trade. This can be endorsed to a third new party altogether. In a different scenario where the creditor might require the money before the set date of maturity he might offer up the bill to the debtor at a discount or endorse it o the bank or a third party altogether for cash. Which type of short term financing is most suitable for SME’s? Trade credits and short term loans are the most suitable type of financing for SME’s because of their efficiency towards satisfying the short term monetary requirements of an SME. Trade cred is more efficient toward the same because it has no interest that needs to be paid to the creditor, however the most important factor of whether or not the enterprise will acquire said finance is their credit worthiness, which is the belief of the creditor about the repayment of the debt by the debtor. Another factor is that the creditor might be willing to give a cash discount to the debtor if he pays the sum in advance. Secondly the short term loans which can be secured or unsecured depend on the number of assets that are at the disposal of the debtor, the more security that can be offered by an sme, the higher the probability that they can receive finances. Some researchers have also found that the money that is borrowed from an instirution is put to use more efficiently because of the fact that the bank keeps track of the uutilisation of the money. The financing carried out through friends and family on the other hand is also useful for sme’s , however this is more difficult to acquire and often has high interest rates. This question requires an answer,now more than ever because of our PM Narendra Modi making a conscious attempt to focus on start ups and do slowly but surely gather a status of an SME because of which it is of utmost essence that we can gather significant info about what is the best kind of short term finance that is to be acquired by sme’s,while on one hand I think that no one type of the media of financing can be selected without having more knowledge of the circumstances under which the enterprise is working under some Important factors can be considered before making such a decision.
What is the best and most viable option of short term financing? According to me the best and most viable option within the realm of short term financing is a bill of exchange and trade credits because of the low interest that they both have, not only this they can both be used by the 2 parties even if there is transnational trade being carried out btw the 2 parties, both are bemeficial to both the parties because the terms that need to negotiated are done so before the parties enter into any agreement with each other, these include the maturity, interest, mode of payment, cash discounts. However within a trade credit there is little security for the creditor in a case where the debtor does not hold up his end of the deal, however the bill of exchange the bill can be endorsed and it is a legal agreement btw the 2 parties and is a legal bind.

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final ioaotcostf

  • 1. Short term financing (slide 1) Of or relating to business assets that are expected to be converted to cash within one year and to business liabilities that are due within one year. A loan scheduled to be repaid in less than a year . Short-term loan is, as the name suggests,a loan that must be repaid within a year or less, with interest. It is not revolving in nature and has a fixed repayment period. (definitions from ppt) 1. Used for an immediate recurring payment to be made. Not paying it leads to a trade deficit 2. Quick liquidity, short period of time <1 year 3. Adequate to finance smaller businesses 4. Can be secured or unsecured in nature Uses of short term financing (2) Quick Liquidity Immediate funds. Fulfils working capital requirements Works to bridge financial gaps Meet tight deadlines Cash Credit (slide3) A cash credit is a short-term cash loan to a company which a bank provides,only after the required security is given. Once a security has been given, the business receives the loan which can be drawn up to a certain specified amount. 1. Secured loans the security can be a tangible asset,such as stock in hand, raw materials. 2. Interest is charged only on the utilized amount 3. The rate of interest charged by loan on cash credit is very high 4. It runs like a current account except that the money that can be withdrawn from this account is not restrictedto the amount deposited the account holder is permittedto withdraw a certain sum called "limit" or "credit facility" Trade Credit (slide 3) Trade credit is the credit extended by suppliers who let you buy now and pay at a later date. Any time you take delivery of materials, equipment or other valuables without paying cash on the spot, you're using trade credit.(same definition as the ppt) 1. Open account. (like how we have with bhavani) no legal obligations and is unsecured. 2. Bills receivable is generally secured and legally obligates the party to pay up, secured. 3. Credit terms( cash discount,time for which cash discount can b availed,period of trade cred) 4. No interest for the parties involved, only cost occurs if there is a trade discount. 5. Criteria for creditors is the credit worthiness of debtors Bridge loan. (4) A short-term loan that is used until a person or company secures permanent financing or removes an existing obligation. This type of financing allows the user to meet current obligations by providing immediate cash flow. 1. Bridge loans are for a max period of 90 days 2. Can be unsecured or secured 3. Eg- property deals Overdraft. (5)
  • 2. Overdraft is an instant extension of credit from a lending institution. When a company has an overdraft arrangement with a bank, it can draw down or transmit cash from its account beyond the available balance. It is also revolving in nature. (same definition as the ppt) 1. Must have a Current a/c with the bank, can borrow after it hits 0 up to the limit agreed b/w them. 2. Interest at specific rate for period of overdrawn time only. 3. Bank can charge an amt even without o/d facility being used. Letter of Credit (6) A letter of credit is a document issued by a third party that guarantees payment for goods or services when the seller provides acceptable documentation. A letter issued by a bank to another bank (especially one in a different country) to serve as a guarantee for payments made to a specified person under specified conditions. 1. Issued from the buyers bank to seller/’s bank in case buyer cannot oblige to pay. 2. LoC can act as a security and is given with the BoE. 3. Final financing is in fact done by the buyer itself and bank assumes responsibility for the bill period. 4. Done only after the importer is sure that the exporter has met with all the conditions. Short term credit (7) • Money that is lent for a short time, usually less than one year. • A loan scheduled to be repaid in less than a year . • When your business doesn't qualify for a line of credit from a bank, it might still have success in obtaining money in the form of a one-time, short-term loan to finance the temporary working capital needs. Bill of Exhange (8) A bill of exchange is an unconditional order in writing, addressed by a person to another, signed, requiring the person to whom it is addressed to; to pay, on demand. a sum in money or to the order of a specified person or bearer. 1. A bill drawn that has pre set conditions like maturity, amount & interest. 2. If seller wants the money before maturity he will provide it to a bank. 3. Said bank will pay money to the creditor at a discount, bank will also collect money from the debtor, charging a discount of their own to the creditor.
  • 3. Importance of boe In short term financing? Bills of exchange have a great deal of importance within any kind of short term financing because it can act to the aid or a debtor who might not have liquid cash at hand, in the short term he can purchase goods against a bill and pay back at the maturity of the bill or before it. There is no interest to be paid (in most cases) and this kind of short term financing is generally unsecured, has minimal paper work. Extremely useful for people who carry out international trade. This can be endorsed to a third new party altogether. In a different scenario where the creditor might require the money before the set date of maturity he might offer up the bill to the debtor at a discount or endorse it o the bank or a third party altogether for cash. Which type of short term financing is most suitable for SME’s? Trade credits and short term loans are the most suitable type of financing for SME’s because of their efficiency towards satisfying the short term monetary requirements of an SME. Trade cred is more efficient toward the same because it has no interest that needs to be paid to the creditor, however the most important factor of whether or not the enterprise will acquire said finance is their credit worthiness, which is the belief of the creditor about the repayment of the debt by the debtor. Another factor is that the creditor might be willing to give a cash discount to the debtor if he pays the sum in advance. Secondly the short term loans which can be secured or unsecured depend on the number of assets that are at the disposal of the debtor, the more security that can be offered by an sme, the higher the probability that they can receive finances. Some researchers have also found that the money that is borrowed from an instirution is put to use more efficiently because of the fact that the bank keeps track of the uutilisation of the money. The financing carried out through friends and family on the other hand is also useful for sme’s , however this is more difficult to acquire and often has high interest rates. This question requires an answer,now more than ever because of our PM Narendra Modi making a conscious attempt to focus on start ups and do slowly but surely gather a status of an SME because of which it is of utmost essence that we can gather significant info about what is the best kind of short term finance that is to be acquired by sme’s,while on one hand I think that no one type of the media of financing can be selected without having more knowledge of the circumstances under which the enterprise is working under some Important factors can be considered before making such a decision.
  • 4. What is the best and most viable option of short term financing? According to me the best and most viable option within the realm of short term financing is a bill of exchange and trade credits because of the low interest that they both have, not only this they can both be used by the 2 parties even if there is transnational trade being carried out btw the 2 parties, both are bemeficial to both the parties because the terms that need to negotiated are done so before the parties enter into any agreement with each other, these include the maturity, interest, mode of payment, cash discounts. However within a trade credit there is little security for the creditor in a case where the debtor does not hold up his end of the deal, however the bill of exchange the bill can be endorsed and it is a legal agreement btw the 2 parties and is a legal bind.