which is not a risk of short-term financing course hero

What is refinancing risk?

Refinancing risk refers to the possibility that a borrower will not be able to replace existing debt with new debt. Any company or individual can experience refinancing risk, either because their own credit quality has deteriorated, or as a result of market conditions. Because most investments involve a degree of risk, ...

Why do you need to refinance a loan?

Refinancing —replacing debt that is coming due with new debt—is common for both businesses and individuals. A major reason to refinance is to save money on interest costs. So typically, you need to refinance into a loan with an interest rate that is lower than your existing rate. The risk is that you might not be able to find such a loan ...

What is a home building company?

A homebuilding company takes on large amounts of short-term debt to fund its projects. The company's strategy was to regularly replace this debt with new debt. This worked well for a number of years until credit markets suddenly seized up because of a banking crisis and banks became unwilling to offer the company any new loans. As a result, the builder needed to sell some of its properties at a large discount in order to quickly raise money to cover its existing short-term debt obligations, which resulted in a sizable financial loss.

Who is Carla Tardi?

Carla Tardi is a technical editor and digital content producer with 25+ years of experience at top-tier investment banks and money-management firms. Thomas Brock is a well-rounded financial professional, with over 20 years of experience in investments, corporate finance, and accounting.

Is it risky to take on debt?

In general, it is impossible to make gains in business or life without taking risks. So, it's important to accept that taking on debt is risky . Typically—whether you're a professional investor, a consumer with credit card debt, or a homeowner trying to refinance—we incur a particular debt because its risk-reward profile is attractive and within our tolerance for risk.

What is short term loan?

Short Term Loans. Short term loans are borrowed funds used to meet obligations within a few days up to a year. The borrower receives cash from the lender more quickly than with medium- and long-term loans, and must repay it in a shorter time frame. Examples of short-term loans include:

Why are credit cards more secure than cash?

In most cases, cards are even more secure than cash, because they discourage theft by the merchant’s employees and reduce the amount of cash on the premises. Finally, credit cards reduce the back office expense of processing checks/cash and transporting them to the bank.

What is an ABCP?

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 one and 180 days from issuance and is typically issued by a bank or other financial institution. The firm wishing to finance its assets through the issuance of ABCP sells the assets to a Special Purpose Vehicle (SPV) or Structured Investment Vehicle (SIV), created by a financial services company. The SPV/SIV issues the ABCP to raise funds to purchase the assets. This creates a legal separation between the entity issuing and the institution financing its assets.

Why did the money market develop?

The money market developed because parties had surplus funds, while others needed cash . The core of the money market consists of inter bank lending (banks borrowing and lending to each other using commercial paper ), repurchase agreements, and similar short-term financial instruments. Because money market securities are typically denominated in high values, it is not common for individual investors to wholly own shares of money market securities; instead, investments are carried out by corporations or money market mutual funds. These instruments are often benchmarked to the London Interbank Offered Rate (LIBOR) for the appropriate term and currency.

How long is a bridge loan?

A bridge loan is a type of short-term loan, typically taken out for a period of two weeks to three years pending the arrangement of larger or longer-term financing. It is interim financing for an individual or business until permanent or next-stage financing can be obtained.

Who is responsible for selling receivables?

The three parties directly involved are the one who sells the receivable, the debtor (the account debtor, or customer of the seller), and the factor. The receivable is essentially an asset associated with the debtor’s liability to pay money owed to the seller (usually for work performed or goods sold). The seller then sells one or more of its invoices (the receivables) at a discount to the third party, the specialized financial organization (aka the factor), often, in advance factoring, to obtain cash. The sale of the receivables essentially transfers ownership of the receivables to the factor, indicating the factor obtains all of the rights associated with the receivables. Accordingly, the factor obtains the right to receive the payments made by the debtor for the invoice amount and, in non-recourse factoring, must bear the loss if the account debtor does not pay the invoice amount due solely to his or its financial inability to pay.

Is a secured loan secured by an asset?

A secured loan is a loan in which the borrower pledges an asset (e.g. a car or property) as collateral, while an unsecured loan is not secured by an asset.