Question

3 - obtaining short-term financing

learning objective: contrast the key characteristics of short-term financing options for a business.

what are the two primary types of short-term financing?

a.) lease-based and equity-based financing
b.) fixed and variable financing
c.) private and public financing
d.) secured and unsecured financing

Explanation:

Define short-term financing

Short-term financing refers to business funding options with a repayment period of one year or less, used to manage immediate cash flow needs.

Identify primary classifications

The two primary categories of short-term financing are based on whether collateral is required to back the loan.

Analyze the options

• Secured financing requires collateral (such as inventory or accounts receivable) to back the loan.
• Unsecured financing does not require collateral and is based on the creditworthiness of the business.

Evaluate the choices

• Option (a) is incorrect because lease-based and equity-based are not the primary classifications for short-term financing.
• Option (b) refers to interest rate structures, not financing types.
• Option (c) refers to the source of funding rather than the structural types of short-term loans.
• Option (d) correctly identifies secured and unsecured as the two primary types.

Answer:

• a.) Lease-based and equity-based financing
• b.) Fixed and variable financing
• c.) Private and public financing
• d.) Secured and unsecured financing (Correct answer)