Short Term Financing - Definition Characteristics and Example

Short-term financing is the most common form of financing used by companies. Usually this type of financing is required to obtain a separate portion of existing assets.

Short-term financing is financing required to collect or establish short-term funds. You may need this type of financing for daily needs. This means that short-term financing is essential for the day-to-day operations of the company .

For example , a business needs short-term financing to cover the purchase of raw materials for manufacturing, labor costs, administrative costs, selling expenses, etc.

Several well-known authors define short-term finance as…

IM Panday - “Funds available for a period of one year or less are called short term financing.”

c. Fred Weston and Eugene F Brigham : "Short-term credit is any liability that is expected to be paid within one year."

So after considering the above discussion and the definition of short term financing by renowned authors, we can say that a finance or fund which has a debt of one year or less is called short term financing.

Some features of short term financing are discussed below…

1. It lasts for one year. Loans of more than one year are not considered short-term financing.

2. The amount of short-term financing is usually small.

3. Minimum short-term financing interest rates.

4. The availability of short term financing is superior to medium or long term financing.

5. The refund process is simple.

6. The risk of short-term financing is greater than other types of financing.

7. How to collect financing is very simple.