short-term financing
compensating balance
demand deposits maintained by a firm to compensate a bank for services provided, credit lines, or loans
receivable factoring
factor usually charges a factoring fee for bearing credit risk and servicing the receivables
commitment fee
fee charged by the lender for agreeing to hold credit available
revolving credit arrangement
formal, legal commitment to extend credit up to max amount over a stated period of time
line of credit
informal arrangement between a bank and its customer specifying the maximum amount of credit the bank will permit the firm to owe at any one time
discount
interest is deducted from the initial loan; results in a higher effective interest rate; payment of interest rate
receivable factoring
interest may be charges when the firm takes a cash advance before the receivables are due
collect basis
interest paid at maturity; payment of interest rates
chattel mortgage
lien on specifically identified personal property backing a loan
trade credit
may be free or costly
letter of credit
promise from a third party (usually a bank) for payment in the event that certain conditions are met
terminal warehouse receipt
receipt for the deposit of goods in a public warehouse that a lender holds as collateral for a loan
trust receipt
security device acknowledging that the borrower holds specifically identified inventory and proceeds from its sale in trust for the lender
receivable factoring
selling of receivables to a financial institution, the factor, usually "without recourse"
commercial paper
short term, unsecured promissory notes, generally by large corporators (highest interest rate)
prime rate
short-term interest rate charged by banks to large, creditworthy customers
bank's acceptances
short-term promissory trade notes for which a bank (by having "accepted" them) promises to pay the holder the face amount at maturity
spontaneous & negotiated
types of short-term financing
approximate annual interest cost on cash discount not taken / nominal annual cost of credit
(% discount) / (100% - % discount) X (365 / [payment date - discount period])
effective annual interest
(1 + [total interest + total fees paid) / usable funds) ^ (365 / tenor of loan) - 1
trade credit
* accounts payable * notes payable * trade acceptances
check benefits of stretching accounts payable against costs such as:
* forgone discount * late penalties or interest that may be charged * deterioration in credit rating
negotiated short-term financing
* money market credit * bank loans * receivable factoring
spontaneous short-term financing
* trade credit * accrued expenses
floating lien
a general, or blanket, lien against a group of assets, without the assets being specifically identified
secured loans
can be backed by either receivables or inventories
bank loans
can either be secured or unsecured
