Short Term

• The business in need of additional working capital (i.e., current assets less current liabilities -- a classic measure of a company's financial well-being) may be able to obtain a revolving credit from its commercial bank. The revolving credit allows short-term advances when revenue is slow and repayment later in the year when revenue increases. Another popular short-term financing operation is factoring, which allows a company to sell its accounts receivable (i.e., valid invoices) at a discount to a finance company called a factor in return for immediate funds.
  
  

Medium Term

• Financing with maturity dates of one to five years is considered medium term. Examples include term loans, equipment leases and some franchise financing contracts. A company may need a medium-term loan for some purpose, such as acquiring another business, but not be exactly sure of the amount it needs. In such a case, it could obtain approval from its bank for a combination standby credit (up to a certain limit) and term loan. The company draws down the amount it needs. That amount becomes the principal of a term loan, which can be repaid over a period of several years.
  
  

Long Term

• Sometimes a business needs long-term financing for a major project such as building a new industrial facility. A popular way to finance such a project is through industrial revenue bonds. Municipalities favor this kind of financing because it helps them attract new industry to their area or keep major employers from moving to other parts of the country. In a typical case, a city will issue a bond in a certain amount, payable in 20 years. The company is obligated to repay the bond during this period, while it enjoys a break on property and other taxes. The city issues the bond, but does not make the loan. The company finds a purchaser for the bond.
  
  

Equity

• Equity represents ownership of a company. The owners of a business may be the founders and any outside investors, such as venture capitalists, who helped the company when it first came into being. Usually the bylaws of a company will authorize a high number of common shares, but only a much smaller number of shares are actually issued. To raise additional funds, the company may bring in new investors and issue more stock in return for their contribution of cash. This method of financing requires no repayment because loans are not involved. Whenever new stock is issued, however, the existing shareholders will see their percentage of ownership diminished.