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short-term debt

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Explain the advantages and disadvantages of using short-term debt. How does short-term debt help the company to manage its current liabilities.

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Solution Summary

This solution explains the advantages and disadvantages of using short-term debt.

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Advantages:

Short term debt financing is a source of 'quick' liquidity for the business, in particular SMEs, who do not have large pool of reserve funds for emergency uses.

Small enterprises are more prone to short term shocks from their operating environment such as a large debtor declaring bankrupt, or an abruptly ceased partnership with a major supplier. Hence, short term debt financing provides almost immediate funds to tide over such difficult situations that could otherwise impact the ...

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Sandeep Bardia, MBA
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  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
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