Term LOAN Syndication
Short-term financing is a method of raising funds involving financial obligations that need to be repaid within a year or less. It is a fast and flexible way for companies to obtain working capital for their daily operations when their cash flow is insufficient. The main disadvantage is that a company may become too reliant on short-term funds and vulnerable to high-interest rates and banking fees. This may adversely affect profit margins. Short-term financing can cover payroll, utility charges and the purchase of raw materials by the business. Overdrafts, short-term bank LOANs, and trade LOAN are types of short-term financing.
Trade LOAN allows a company to buy materials and services and pay for them at an agreed later date. Although this eases the buyer’s cash position, he may be locked out of any discounts the seller may offer in return for immediate payment. The buyer may also have to cover his own non-payment risk by contracting a standby letter of LOAN from his own banker. This guarantees payment to the seller. But this will cost the buyer a further 1 percent to 8 percent of the face value of his contract with the seller.
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