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Explain the term 'Short-term finance' - Leaving Cert Business - Question 9 - 2011
Question 9
Explain the term 'Short-term finance'. Short-term finance is finance that is available for a period of up to one year. It should be repaid within twelve months. Il... show full transcript
Worked Solution & Example Answer:Explain the term 'Short-term finance' - Leaving Cert Business - Question 9 - 2011
Step 1
Explain the term 'Short-term finance'
Answer
Short-term finance refers to funds that are borrowed or provided for a limited period, typically up to one year. This type of finance is often used to meet immediate financial needs, such as managing cash flow, purchasing inventory, or meeting operational costs. The key characteristic of short-term finance is that it must be repaid within twelve months, which distinguishes it from long-term finance options.
Step 2
Illustrate a business situation where 'short-term finance' would be appropriate
Answer
An example of a situation where short-term finance would be appropriate is when a retailer needs to purchase additional stock to manage an unexpected increase in customer demand. In this case, the retailer could utilize trade credit, allowing them to buy inventory from suppliers and defer the payment until after the products have been sold, thus managing cash flow effectively.