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SHORT-TERM FINANCING
The seasonal financial needs of a company may be covered by short-term sources of funds. The company must pay them off within one year. Businesses spend these funds on salaries and for emergencies. The most popular outside sources of short-term funds are trade credit, loans, factors, sales finance companies, and governmental sources.
About 85 per cent of all US business transactions involve some form of trade credit. When a business orders goods and services, it doesn’t normally pay for them. The supplier provides them with an invoice requesting payment within a settled time period, say thirty days. During this time the buyer uses goods and services without paying for them.
A company can use the trade credit as a source of savings. A typical trade arrangement is 2/10, net 30. If a buyer pays within 10 days instead of 30, he gets a 2 per cent discount. The savings a buyer obtains can be used as a source of short-term funds.
Commercial banks lend money to their customers by direct loans or by setting up lines of credit. A line of credit is the amount a customer can borrow without making a new request, simply by notifying the bank. If the business doesn’t pledge collateral when it borrows, the loan is an unsecured loan. Only customers with an excellent credit rating can get an unsecured loan. They usually repay it within a year’s time. When a company wants to borrow a large sum of money it pledges collateral to back up the loan. Such a loan is secured one.
A company might sell its accounts receivable to a special financial broker: a factoring company, a factor. The factor immediately pays the firm cash, usually 50 to 80 per cent of the value of the accounts receivable. When customers make the payments on their accounts, the money goes directly to the factor.
Some big firms obtain funds by selling commercial paper. Because commercial paper has no collateral behind it, only firms with good financial reputation can sell it. In special cases, a business may obtain short-term funds from federal government.
2. Прочитайте текст снова и письменно ответьте на вопросы:
1. What are most popular short-term funds?
2. How do commercial banks lend money to their customer?
3. What do firms do to obtain funds?
4. What is a typical trade arrangement?
5. How does business spend short-term sources of funds?
ПРИЛОЖЕНИЕ
Министерство образования и науки Российской Федерации
Волжский политехнический институт (филиал)
федерального государственного бюджетного образовательного
учреждения высшего профессионального образования
«Волгоградский государственный технический университет»
ВПИ (филиал) ВолгГТУ
Вечерний факультет
Кафедра «Социально-гуманитарные дисциплины»
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Волжский 2012