LJ-wk44404 Select three short-term financing instruments and three long-term financing PDF

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Please write at least three well composed paragraphs that describe the following Select three short-term financing instruments and three long-term financing instruments. Please write at least three well composed paragraphs describing what each instrument is and how it works....

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The fourth unit of this course looked at ‘Principles: Capital Structure and Cost of Capital.' Under this heading, we concentrated on aspects such as the balance sheet review, with a particular emphasis on long-term equity and debt, bonds, and dividend yields. Then, we compare shortterm and long-term assets to their corresponding liabilities. The unit concluded with an overview of the concept of cost of capital. This week's learning journal will focus on describing short-term and long-term financing instruments and their significance in finance in relation to the knowledge gained in this unit. Short-term financing according to Wood (2020) "is defined as any financing that a borrower pays off over a shorter repayment period. More specifically, though, short-term finance refers to any loan that a business pays off in under a year. " (para. 4). Wood states that there are four main types of short-term financial instruments, including "Merchant cash advances, Short-term loans, Business lines of credit, Invoice financing" (para. 15). A merchant cash advance (MCA) is a type of business financing in which you receive a lump sum that you repay with a percentage of your daily credit and debit card sales plus a fee. A merchant cash advance is not a business loan; rather, you are selling your future debit and credit card transactions at a discount. It has a duration of between four months to eighteen months. The fees for this type of financing are usually calculated at rates ranging from 1.14 to 1.48. Consider this scenario for better understanding. A small business borrows cash via MCA, say $25000 at a factor rate of 1.2. This business will repay $30000 to the lending company, implying the daily cost of the loan is $5000 (Wood, 2020). Short-term loans are cheaper compared to MCA. Their duration is three to eighteen months with an interest beginning at least 10%. In this type of short-term financing, your lender will provide you with a lump sum of capital at the start of your loan, and you will repay that lump sum, plus interest, in regular installments (Wood, 2020). Invoice financing, also known as accounts receivable financing, is a type of asset-based financing in which business owners receive a capital advance in exchange for unpaid invoices. In most cases, invoice financing companies will advance you up to 85 percent of the value of your invoices, and you will receive the remaining 15 percent (less fees) when your invoices are paid (Wood, 2020). Long-term financing as defined by the world bank (n.d) "is any financial instrument with a maturity exceeding one year (such as bank loans, bonds, leasing and other forms of debt finance), and public and private equity instruments." (para. 1) A bank loan is when a bank offers to lend money to customers for a set period of time. The borrower must pay a certain amount of interest per month or per year as a condition of the bank loan. Bank loans can be secured, with collateral (Mortgage), especially when the amount is huge, or unsecured when the amount is small (Economicshelp, n.d). A bond is a financial instrument that represents the bond issuer's indebtedness to the bondholders. Municipal bonds and corporate bonds are the most common types of bonds. Bonds can be held in mutual funds or in private investments where a person makes a loan to a company or the government. Bonds are issued to raise funds (by governments and/or corporations). You are making a loan to the issuer by purchasing a bond, and they agree to repay you the face value of the loan on a specific date, as well as pay you periodic interest. Typically, this occurs twice a year. (Fernando & Scott, 2021). A lease is a legally binding contract in which the lessee agrees to pay the lessor for the use of an asset. Leased assets include real estate, buildings, and vehicles. Industrial or commercial equipment is also leased. In general, a lease agreement is a contract between two parties: the lessor and the lessee. A Lease has both

the characteristics of short and long-term financing and largely depends on the agreement of the lessor and the lessee (Chen & Kindness, 2020).

References Wood M (2020) Short-Term Finance: The Ultimate Guide for Small Business Owners https://www.fundera.com/business-loans/guides/short-term-finance WORLD BANK (n.d) long term finance. https://www.worldbank.org/en/publication/gfdr/gfdr2016/background/long-term-finance Economics help (n.d).Bank loans. https://www.economicshelp.org/blog/glossary/bank-loans/ Fernando J & Scott G (2021) Bonds. https://www.investopedia.com/terms/b/bond.asp Chen J & Kindness D (2020) What makes you a renter. A lease. https://www.investopedia.com/terms/l/lease.asp...