Short term financing is the most used system of financing for the business. Usually, this type of financing is required to purchase the differential part of current assets.
Short term financing is the financing required for increasing or establishing short term fund. To fulfill the daily necessity this type of financing can be required. That means for smooth operation of the daily activities of a business, short term financing is required.
For example, a business organization may required short term financing in order to purchase production raw material, provide labor cost, administration cost, selling cost, etc.
Some popular authors define short term financing in the below ways...
I.M. Panday- "Funds available for a period of one year or less is called short term finance."
J. Fred Weston & Eugene F. Brigham- "Short term credit is defined as any liability originally scheduled for payment within one year."
So, after analyzing the above discussion and popular author's definition of short term financing, we can say that the finance or fund which is belongs to one year or below one year liability is called short term financing.
Some characteristics of short term financing are highlighted below...
1. It has one year duration. More than one year of credit is not considered as short term financing.
2. Usually the amount of short term financing is small.
3. The interest of short term finance is a tiny amount.
4. The availability of short term financing is more than other mid term or long term financing.
5. The renewal process of such financing is easy.
6. The risk of short term finance is high than any other type of financing.
7. The collection system of such finance is very easy.
