Principles of Managerial Finance, 15th Edition

16.2 Unsecured Sources of Short-Term Loans

1. LG3

2. LG4

Businesses obtain unsecured short-term loans from two major sources, banks and sales of commercial paper. Unlike the spontaneous sources of unsecured short-term financing, bank loans and commercial paper carry an explicit interest rate (rather than the implicit rate tied to early payment discounts). Bank loans are more widespread because banks lend to firms of all sizes; only large firms can issue commercial paper. As the Focus on Ethics box explains, bank loans offer additional benefits to shareholders beyond the capital they provide to firms. In addition, firms can use international loans to finance international transactions.

Focus on Ethics In Practice

Bank Loans and Shareholder Wealth ...