The Advantages of Short-Term Debt (2024)

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  1. Short-term debt is defined as a loan for a period of one year or less, according to InvestorWords.com. Businesses benefit from using short-term debt in different ways. Indeed, businesses of all types often rely upon short-term debt to keep their doors open, according to "Loan Financing Guide for Small Business Owners" by D. Neil Berdiev.

Operating Capital

  1. Operating capital is defined as cash available to pay for the day-to-day operations of a business, according to BusinessDictionary.com. Ideally, operating capital is available from the revenue generated by business operations. During the initial period a business is in operation, and at other times during its existence, revenue may not keep up with operational expenses.

    One of the advantages of short-term debt is ensuring that cash is available to satisfy the operating capital needs of a business. Short-term debt literally is used to keep a business running during times when the revenue stream temporarily is insufficient to meet operational needs.

Emergency Funding

  1. There is no way a business owner or manager can plan for every possible emergency situation. Although a business ideally maintains a reserve cash fund to at least deal with some expenses associated with an emergency situation, such an account is not always possible or funded sufficiently.

    Short-term debt assists a business in dealing with an emergency situation, according to "How to Get the Financing for Your New Small Business" by Sharon L. Fullen. For example, if a piece of equipment at a manufacturing business fails, short-term debt allows for the replacement of the hardware.

Expansion

  1. Few business owners start a venture with the idea that it will remain the same size into the future. Most business owners desire at least some degree of expansion. Short-term debt provides a business with ready cash to initiate an expansion program, according to "Loan Financing Guide for Small Business Owners." For example, short-term debt is used to lease additional space to house the business' growing operations.

References

  • "How to Get the Financing for Your New Small Business"; Sharon L. Fullen; 2006
  • "Loan Financing Guide for Small Business Owners"; D. Neil Berdiev; 2006

Resources

Writer Bio

Mike Broemmel began writing in 1982. He is an author/lecturer with two novels on the market internationally, "The Shadow Cast" and "The Miller Moth." Broemmel served on the staff of the White House Office of Media Relations. He holds a Bachelor of Arts in journalism and political science from Benedictine College and a Juris Doctorate from Washburn University. He also attended Brunel University, London.

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