韩山师范学院财务管理课件第八章 Sources of Short-Term Financing.ppt

Chapter 8 Sources of Short-TermFinancing Chapter 8 - Outline LT 8-1 Sources of Short-Term Financing Trade Credit Net Credit Position Bank Credit Terminology Types of Bank Loans Corporate and Foreign Borrowing Terminology Accounts Receivable Financing Sources of Short-Term Financing LT 8-2 There are various sources of short-term funds available to a firm: – Trade Credit from Suppliers – Bank Loans – Corporate Promissory Notes – Foreign Borrowing – Loans Against Receivables and Inventory Trade Credit LT 8-3 The largest source of short-term financing for a firm It is usually a 30-60 day grace period before a bill is due A cash discount is often given if payment is made within a specified time – Ex., 2/10 net 30 means a 2% discount is given if paid in 10 days; if not, the full amount is due in 30 days Net Credit Position LT 8-4 Net Credit Position: – a firm’s Accounts Receivable (A/R) minus its Accounts Payable (A/P) – if A/R is greater than A/P, it is a net provider of trade credit (positive number) – if A/P is greater than A/R, it is a net user of trade credit (negative number) – larger firms tend to be net providers of trade credit, while smaller firms are net users Bank Credit Terminology LT 8-5 Prime Rate: – the interest rate charged to a bank’s best customers – acts as a benchmark for calculating other interest rates Compensating Balance: – when a bank requires a minimum average account balance for business customers in order to qualify for a loan – can be thought of as a form of collateral Effective Interest Rate: – the actual interest rate or “true” cost of a loan – also known as the annual percentage rate (APR) Types of Bank Loans LT 8-6 Discounted Loan: – when a bank deducts the interest on the loan in advance and lends the balance Installment Loan: – calls for a series of equal payments over the life of the loan – ex., most car loans and home mortgages Compensating Balance Loan: – when a compensating