Question

Why will banks extend short-term working capital financing to companies to which they would not extend...

Why will banks extend short-term working capital financing to companies to which they would not extend long-term credit.

a.

Conditions are unlikely to deteriorate too badly in the short term.

b.

Working capital loans are "self liquidating."

c.

The working capital itself can be used to collateralize the loan.

d.

All of the above.
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Answer #1

Correct option is D. The answer should be all the above since working capital would be a short term facility and if the company's future looks good in short term and bad in long term, then working capital can be extended. Also, it can be self liquidating since financing the operations through working capital would result in profits that can be used to generate the profit. Also, since working capital could be used to generate cash hence could be used as collateral.

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