{"id":40309,"date":"2022-08-12T14:17:50","date_gmt":"2022-08-12T14:17:50","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=40309"},"modified":"2026-01-09T18:00:52","modified_gmt":"2026-01-09T18:00:52","slug":"short-term-funding-choices-for-a-company","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-issuers\/short-term-funding-choices-for-a-company\/","title":{"rendered":"Short-term Funding Choices for a Company"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Working Capital and Liquidity (2025 Level I CFA\u00ae Exam \u2013 Corporate issuers \u2013 Module 5)\",\n  \"description\": \"This session covers working capital management, focusing on balancing current assets and liabilities to maintain liquidity. It explores internal and external financing options, working capital strategies (conservative, moderate, aggressive), key financial ratios, and the importance of managing short-term funding needs to optimize corporate liquidity and solvency.\",\n  \"uploadDate\": \"2020-09-30T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/img.youtube.com\/vi\/qwQXR6SdLvA\/hqdefault.jpg\",\n  \"contentUrl\": \"https:\/\/www.youtube.com\/watch?v=qwQXR6SdLvA\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/qwQXR6SdLvA\",\n  \"duration\": \"PT47M50S\"\n}\n<\/script>\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"Factors influencing a company\u2019s short-term borrowing strategy\",\n    \"text\": \"Which of the following factors will least likely influence a company\u2019s short-term borrowing strategies?\\n\\nA. Size and creditworthiness.\\nB. Legal and regulatory considerations.\\nC. Capacity to handle sudden cash needs.\",\n    \"answerCount\": 1,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is C.\\n\\nEnsuring the capacity to handle sudden cash needs is an objective of a short-term borrowing strategy rather than a factor influencing it.\\n\\nOption A is incorrect because a company\u2019s size and creditworthiness directly affect its access to short-term funding and the interest rates it pays. Option B is incorrect because legal and regulatory considerations can restrict borrowing amounts and influence the structure of short-term financing.\"\n    }\n  }\n}\n<\/script>\n\n\n\n\n<iframe loading=\"lazy\" width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/qwQXR6SdLvA?si=OwVAdUoZ7-9OB4Ix\" title=\"YouTube video player\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n\n\n\n<p>The objectives of a short-term borrowing strategy include the following:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Ensuring that there is the capacity to handle sudden cash needs.<\/li>\n\n\n\n<li>Maintaining sufficient credit sources to fund cash needs.<\/li>\n\n\n\n<li>Ensuring that the interest rates obtained are competitive.<\/li>\n\n\n\n<li>Ensuring that a company&#8217;s effective cost of borrowing takes both hidden and explicit funding charges into account.<\/li>\n<\/ul>\n\n\n\n<div style=\"margin: 0 0 20px 0;\">\n  <a\n    href=\"https:\/\/analystprep.com\/free-trial\/\"\n    target=\"_blank\"\n    rel=\"noopener noreferrer\"\n    style=\"\n      display: inline-block;\n      border: 2px solid #1e63ff;\n      color: #1e63ff;\n      background: #ffffff;\n      padding: 10px 14px;\n      border-radius: 10px;\n      font-weight: 500;\n      line-height: 1.35;\n      text-decoration: none;\n    \"\n  >\n    Want to practice short-term funding choices like trade credit, bank borrowing, and commercial paper for CFA Level I? Try AnalystPrep\u2019s free trial now.\n  <\/a>\n<\/div>\n\n\n\n<p>Several factors will influence a company&#8217;s short-term borrowing strategies:<\/p>\n<ul>\n<li><strong>Size and creditworthiness<\/strong>: A company&#8217;s size influences the options it has at its disposal. A large company can access commercial paper and bankers&#8217; acceptance. A borrower&#8217;s creditworthiness determines the interest rate it will pay and\/or whether there will be need for collateral.<\/li>\n<li><strong>Legal and regulatory considerations<\/strong>: There may be regulatory restrictions on the amount a company can borrow.<\/li>\n<li><strong>Asset nature<\/strong>: Companies may have assets considered attractive as collaterals for secured loans.<\/li>\n<li><strong>The flexibility of borrowing options<\/strong>: This ensures that there are no days when significant debt matures, leading to large cash outlays. Additionally, the ability to make prepayments whenever possible without any penalties should be considered.<\/li>\n<\/ul>\n<blockquote>\n<h2><strong>Question<\/strong><\/h2>\n<p>Which of the following factors will\u00a0<em>least likely\u00a0<\/em>influence a company\u2019s short-term borrowing strategies?<\/p>\n<ol type=\"A\">\n<li>Size and creditworthiness.<\/li>\n<li>Legal and regulatory considerations.<\/li>\n<li>Capacity to handle sudden cash needs.<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is<strong>\u00a0C<\/strong>.<\/p>\n<p>Ensuring that there is the capacity to handle sudden cash needs is an objective of a short-term borrowing strategy.<\/p>\n<p><strong>A is incorrect<\/strong>. Size and creditworthiness is a factor influencing a company\u2019s short-term borrowing strategy. A company\u2019s size influences the options at its disposal, while its creditworthiness influences the interest rate it will pay.<\/p>\n<p><strong>B is incorrect<\/strong>. Legal and regulatory considerations influence a company\u2019s short-term borrowing strategy since there may be regulatory restrictions on the amount a company can borrow.<\/p>\n<\/blockquote>\n\n\n<div style=\"text-align: center; margin: 32px 0;\">\n  <a\n    href=\"https:\/\/analystprep.com\/free-trial\/\"\n    target=\"_blank\"\n    rel=\"noopener noreferrer\"\n    style=\"\n      display: inline-block;\n      background-color: #1e63ff;\n      color: #ffffff;\n      padding: 12px 26px;\n      border-radius: 12px;\n      font-weight: 600;\n      font-size: 16px;\n      text-decoration: none;\n    \"\n  >\n    Start Free Trial \u2192\n  <\/a>\n\n  <div style=\"margin-top: 10px; font-size: 14px; color: #374151;\">\n    Practice corporate finance questions on short-term funding costs, risks, and liquidity management with CFA Level I style solutions.\n  <\/div>\n<\/div>\n\n","protected":false},"excerpt":{"rendered":"<p>The objectives of a short-term borrowing strategy include the following: Want to practice short-term funding choices like trade credit, bank borrowing, and commercial paper for CFA Level I? Try AnalystPrep\u2019s free trial now. Several factors will influence a company&#8217;s short-term&#8230;<\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[25],"tags":[],"class_list":["post-40309","post","type-post","status-publish","format-standard","hentry","category-corporate-issuers","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Short-Term Funding Options for Companies | CFA L1<\/title>\n<meta name=\"description\" content=\"Learn about short-term funding sources, including bank lines, commercial paper, and trade credit. 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