22. Short-term and medium-term financing. Banking and commercial credit. Краткосрочное и среднесрочное финансирование. Банковскийикоммерческийкредит.

Short-term, medium-term and long-term debt financing are an external sources of raising funds to the company. Short-term financing is usually used for a day-to-day and continuing operations financing. Medium-term financing instruments can be a leasing agreement.

Short-term and medium-term financing includes the following financial instruments:

• Commercial Paper

• Promissory Note

• Asset-based Loan

• Repurchase Agreements

• Letter of Credit

• Commercial bank loans

Commercial Paper

• This is an unsecured promissory note with a fixed maturity of 1 to 364 days in the global money market. It is issued by large corporations to get financing to meet short-term debt obligations. It is only backed by an issuing bank or corporation's promise to pay the face amount on the maturity date specified on the note. Since it is not backed by collateral, only firms with excellent credit ratings from a recognized rating agency will be able to sell their commercial paper at a reasonable price.

Asset-backed commercial paper (ABCP)

• Is a form of commercial paper that is collateralized by other financial assets. ABCP is typically a short-term instrument that matures between 1 and 180 days from issuance and is typically issued by a bank or other financial institution.

Promissory Note

• This is a negotiable instrument, wherein one party (the maker or issuer) makes an unconditional promise in writing to pay a determinate sum of money to the other (the payee), either at a fixed or determinable future time or on demand of the payee, under specific terms.

Asset-based Loan

• This type of loan, often short term, is secured by a company's assets. Real estate, accounts receivable (A/R), inventory and equipment are typical assets used to back the loan. The loan may be backed by a single category of assets or a combination of assets (for instance, a combination of A/R and equipment).

Repurchase Agreements

• These are short-term loans (normally for less than two weeks and frequently for just one day) arranged by selling securities to an investor with an agreement to repurchase them at a fixed price on a fixed date.

 

Letter of Credit

• This is a document that a financial institution or similar party issues to a seller of goods or services which provides that the issuer will pay the seller for goods or services the seller delivers to a third-party buyer. The issuer then seeks reimbursement from the buyer or from the buyer's bank. The document serves essentially as a guarantee to the seller that it will be paid by the issuer of the letter of credit, regardless of whether the buyer ultimately fails to pay.

Commercial bank loans

• Appears on the balance sheet as notes payable and is second in importance to trade credit as a source of short-term financing. Banks occupy a pivotal position in the short-term and intermediate-term money markets. As a firm’s financing needs grow, banks are called upon to provide additional funds. A single loan obtained from a bank by a business firm is not different in principle from a loan obtained by an individual. The firm signs a conventional promissory note. Repayment is made in a lump sum at maturity or in installments throughout the life of the loan. A line of credit, as distinguished from a single loan, is a formal or informal understanding between the bank and the borrower as to the maximum loan balance the bank will allow at any one time.

CommercialCredit

• A pre-approved amount of money issued by a bank to a company that can be accessed by the borrowing company at any time to help meet various financial obligations. Commercial credit is commonly used to fund common day-to-day operations and is often paid back once funds become available. Also commonly referred to as a "commercial line of credit" or "business credit"

• Commercial credit means that the lender is not a credit institution, a credit is granted in the course of a trade transaction, so it is also called a trade credit. Credit can provide any subject, having at their disposal free funds.

• Commercial loan is one of the first forms of credit relations in the economy, which gave a rise to the circulation of bills and thus actively contribute to the development of non-cash turnover, finding practical expression of financial and economic relations between entities in the form of sales of products or service deferred payment. The main objective of this form of credit - the acceleration of the implementation of the goods and, hence, recovery of profit inherent in them.

• The instrument of a commercial credit is traditionally a bill expressing the financial obligations of the borrower to the creditor. The most widely used form of two bills - a promissory note containing a direct obligation of the borrower to pay a fixed amount directly to the creditor, and transfer (draft), which is a written order to the borrower by the lender to pay a fixed amount to a third person or to the bearer of the bill. In modern conditions the function of the bill often takes on a standard contract between the supplier and the consumer, regulating the procedure for payment of products sold on the commercial loan conditions.