Question

9.3. Justine Oxley currently is not working as she believes her role is to look after her young children. Her husband is an oil-field worker and is often away on location for 6-monthly periods. The family allocates $1000 for household expenses monthly and this amount is automatically credited to Justine’s cheque account. The rest of her husband’s pay, apart from a small allocation as his ‘pocket money’, is directly transferred to their mortgage account so that the balance is reduced as rapidly as possible. Abnormal health expenses paid this month have left her short of funds until the next monthly payment of funds into her cheque account. What type of credit facility best suits her needs?

Answer 1

In finance their is mainly two types of credit.

1)Long Term Credit

2)Short Term Credit

Long term credit includes Bank loans which is the most common credit facility defined by specific amount,tenure and also a specified repayment schedule.In this the interest is required to be paid during the tenure .

Short term credit facility is mainly to meet working capital needs such as

Cash credit

Short term loans

Trade finance(factoring,letter of credit,export credit,etc)

Raising equity using convertible securities is also a method to raise funds for a company.

In the given case as Justine Oxley is non working so she can opt for long term bank loan for which she will be required to pay bank interest .