Long-term vs Short-term Financing

Long term and short term financing both offer firms some sort of temporary or long term
support in times of financial distress. Short term financing is relatively easier to obtain
and is frequently used by smaller and larger firms alike. Long term financing, on the
other hand, is more difficult and riskier to obtain, therefore, only larger firms or firms with
strong collateral can obtain long term loans. The other major difference between the two
forms of financing is that shorter term financing as it names suggests is for shorter
periods and is usually used to obtain temporary financial relief from short term shortage
of funds. Longer term financing is used for larger investments or projects for which
larger sums of funds are required for an extended period of time.
Summary:
Long term and short term financing are different to each other mainly because of the
time period for which the finance is provided, or the debt/loan repayment period.
Short term financing usually refers to financing that spans a period of less than a year
to one year. Since the risk with such short term finances is lower, any company
especially smaller firms will have easy access to short term financing.
Long term financing refers to financing that spans a longer period of time that could go
up to about 3-30 years or more. Long term loans are riskier and banks or financial
institutions providing the loan have more to lose since the amount borrowed is larger
and period of repayment is longer.