Question

Explain key methods of short-term financing, and rank them from least risky to most risky. Imagine that you had to quickly raise capital for a startup in your area of interest. Which method(s) would you use, and why?

Answer 1

Short term finanicing is done via many channels few of them are as below:

1) Trade Credit: credit is extended for a some time to the supplier or other participants in the transaction cycle. Most risky there is chance of default by payer and lead to huge loss.

2) Line of Credit: It is given by banks or financial institution where certain amount is approved by them. Less risky due to have backing by bank.

3) Invoice Discounting: It is where banks discount the invoice. Less risky but still there is risk of non payment.

4) Factoring: Same as invoice discounitng only difference is discount over the acount receivables. Risky due to not receiveing the account receivables at all.

5) Short term loan: Mianly given by bank for short term financing. It is least risky since is it backed by bank.

For startup I will with angle investing or short term loan because it will not require any gurantee.