ACCA Strategic Business Leader (SBL) Practice Exam

Which option is typically considered short-term finance?

1. Equity finance

2. Trade credit

3. Venture capital

4. Debt finance

The correct answer is: Trade credit

Trade credit is recognized as short-term finance because it represents a form of credit extended by suppliers allowing businesses to buy goods or services and defer payment for them, usually for a period ranging from 30 to 90 days. This type of financing is important for managing a company's working capital, as it helps businesses maintain liquidity and smooth operations without needing immediate cash outflow. In contrast, equity finance involves long-term funding through the sale of shares, providing capital that does not require repayment like a loan might. Venture capital is a type of private equity invested in early-stage companies, often requiring a longer investment horizon for returns. Debt finance can cover both short and long-term loans, but it typically includes longer-term obligations like bank loans and debentures. Hence, trade credit distinctly stands out as a primary example of short-term financing.