Short-Term Financing, Essay Example

Short-term financing in a business plays a vital role in perpetuating the business during hard economic times. However, most businesses especially the small ones are unable to access short-term financing during the time of need. Some of the most important factors in this respect involve the business characteristic and the nature of the industry of business operation. Business seasonality and variations in seasons play a critical factor in the inherent capacity of a business to acquire short-term financing. Seasonal variations affect the sales of the products of the business and thus the continuous flow of funds. This in turn is detrimental to the progressive growth of the business that is used to project the potential of the business to repay any short-term financing advanced to the business. Any fluctuation in the flow of funds that is encountered in the firm’s business cycle has significant implications in the requirements for funds.

Financial forecasting is a very important role of any financial manager in any business organization. This facilitates for the determination of the capital requirements in the future and thus projects and plans for their availability and utilization in financing any viable program that is likely to pay back even if implemented through short-term financing. Assessing the estimates of sales of every season in the business cycle will allow the manager to plan and utilize efficiently any short-term financing acquired for the business.

Budgeting is another core function of the management that can be used to minimize the negative effects that are associated with short-term financing and can also be utilized to ensure that short-term financing is available for the business. The budget is also used to facilitate for some changes in case some factors beyond the control of the business are encountered.