3.2.3—Short-term and long-term finance

Short-term finance covers a temporary working-capital need; long-term finance supports assets or projects whose benefits and repayments extend over years. The term should fit the timing of cash inflows rather than simply the size of the purchase.

An overdraft or trade credit can bridge a seasonal stock purchase, but an overdraft may be called in and interest can rise. A mortgage, long-term loan or share capital is more suitable for a building or major equipment that generates returns over time.

If a café needs cash for ingredients until customers pay, short-term credit may be sensible. Funding a ten-year oven with a one-month facility creates refinancing pressure; funding a brief shortage with a long loan may leave unnecessary interest and restrictions.

‘Short’ and ‘long’ describe duration, not whether a source is internal or external. A recommendation must compare repayment timing, risk, flexibility and the asset or cash-flow cycle.