Credit, Debt, and Finance

True.

1. Short term loans are available quickly. One of the defining features of short term loans is that you can borrow them fast – sometimes even on the same day or within 24 hours. This makes financing, such as payday loans, ideal if you find yourself in a situation where you need cash fast.
   
2. There is no longer term commitment with this type of loan. With short term loans you only need to focus on the immediate future as the loan is paid off within a much shorter space of time. Many people find it intimidating to commit to borrowing over a period of many years, worrying about making the payments and managing the loan with all of life going on around. With short term loans this isn’t an issue as repayment terms can be as short as a month, leaving you free to repay and move on.
   
3. Short term loans could cost less. The longer you borrow for, the more interest you will pay. Short term loans offer a simple way to borrow the cash you need and to pay less for it – the shorter the term over which you borrow the money, the less interest you will pay. As you have not secured your home or car with short term borrowing there is also less risk of losing them if you cannot make repayments. While you should always make sure that you only borrow what you can afford to repay, avoiding the risk to your home or car that some longer term loans create can take the pressure off for many people.
   

Personal assets pledged by a borrower as security for a loan are known as collateral. Business borrowers may use equipment or accounts receivable to secure a loan, while individual debtors often pledge savings, a vehicle or a home as collateral. Applications for a secured loan are looked upon more favorably than those for an unsecured loan, because the lender can collect the asset should the borrower stop making loan payments. Banks measure collateral quantitatively by its value and qualitatively by its perceived ease of liquidation.

Unsecured loan is a loan that is issued and supported only by the borrower's creditworthiness, rather than by any type of collateral. Because unsecured loans, sometimes referred to as signature loans or personal loans, are obtained without the use of property as collateral, the terms of such loans, including approval and receipt, are most often contingent on the borrower's credit score. Borrowers must generally have high credit ratings to be approved for certain unsecured loans.

Therefore short term loans are issued on the basis of creditworthiness not on the basis of collateral security hence short term loan are unsecured.

Equity finance is a method of raising fresh capital by selling shares of the company to public, institutional investors, or financial institutions. The people who buy shares are referred to as shareholders of the company because they have received ownership interest in the company. It is one of sources of the long term financing.

Businesses should generally follow the rule of tying the length of their financing to the life of the asset they are financing. So, if a business needs to make a major capital improvement, such as purchasing a piece of equipment for their manufacturing process that will last 10 years, a long-term business loan would be the appropriate type of financing. A short-term business loan would not be appropriate in this case. If a business needs to buy capital equipment, buildings, other businesses, or undertake construction projects, a long-term loan is the way to go.

Short term borrowings offer the benefit of reduced cost due to reduction of idle capital. Short term borrowings refers to the debt which is obtained for an year or less than a year.

Long-term borrowings are generally used for fixed capital needs like plant & machinery, buildings and projects. They are borrowings which exceed 5 years or more. Hence, long-term borrowings are considered a necessity on many grounds.

Rebate on Bills Discounted is also known as Discount Received in Advance, or, Unexpired Discount or, Discount Received but not earned. Its treatment is same as we do in the case of Interest Received in Advance.

When bill is sold to the bank at a discounted rate it is called discounting the bill of exchange.
As cash is received on discounting the bill it is also called encashment.

Closing stock is an asset. If it is zero, it does not represent a loss in the accounting sense; rather, it reflects that all goods were sold or otherwise disposed of. The other statements are standard accounting definitions.

Medium-term loans are the type of loans with a repayment period that lasts between two and five years. These are given for the purpose of financing of professional equipment which is needed for production or service provision activities, thus including safety or environmental protection. Thus, for purchasing the seeds, fertilizers etc. The loan distributed is called medium-term loan.

Thus, the correct answer is C.

Trade credit can be defined as delay of payment permitted by the creditor or supplier of raw materials, consumables etc. against the goods purchased from him. Trade Credit is a major source of working capital finance for most business whether small or big.

Trade credit is commonly used by business organisations as a source of short-term financing. Trade credits are generally a small amount of finances that are provided by the traders to another trader or a company to ensure smooth flow of trade cycle in the supply chain.

Excess borrowings in working capital loans represent inefficient capital management and should be reduced to optimize the financial structure and minimize interest costs.