Published by:
Harvard Business Publishing
Length: 5 pages
Share a link:
https://casecent.re/p/47585
Write a review
|
No reviews for this item
This product has not been used yet
Abstract
The matching principle says, "Don''t finance long-term needs with short- term capital." Small businesses, however, rarely use strict matching. By not adhering to the matching principle, small businesses incur three risks. First, when loan-renewal time comes, interest rates can be higher. Second, a lender may decide to terminate the agreement. Last, a lender might begin to make operating "suggestions" that limit the company''s autonomy if payments are not met in time. To deal with these risks, small businesses that use some amount of short-term capital to finance long- term requirements need to be flexible enough to eliminate the debt in a reasonable period of time without disturbing operations.
About
Abstract
The matching principle says, "Don''t finance long-term needs with short- term capital." Small businesses, however, rarely use strict matching. By not adhering to the matching principle, small businesses incur three risks. First, when loan-renewal time comes, interest rates can be higher. Second, a lender may decide to terminate the agreement. Last, a lender might begin to make operating "suggestions" that limit the company''s autonomy if payments are not met in time. To deal with these risks, small businesses that use some amount of short-term capital to finance long- term requirements need to be flexible enough to eliminate the debt in a reasonable period of time without disturbing operations.