Short and medium term debt finance - part 1

In this lesson

1. 0:00 Introduction to short and medium term debt
2. 0:50 Factors influencing debt finance choice
3. 1:55 Security and asset quality requirements
4. 2:48 Loan amount and transaction costs
5. 3:57 Matching borrowing duration to asset use
6. 5:01 Credit rating and interest rate types
7. 5:51 Tax deductibility of interest costs

About this lesson

This video covers why companies select different types of short and medium term debt, introduces debt covenants, and walks through a practical example to bring the concepts to life. Understanding these factors is essential for FM and other finance modules, as it helps you evaluate financing decisions in exam questions and real business scenarios. By the end, you'll be able to explain why a business might choose one debt option over another, and how constraints like existing covenants or asset quality shape those decisions. The session begins by exploring the factors that drive debt choice: availability (whether lenders will provide the finance), existing covenants (restrictions on current debt), security (quality assets to back the loan), and the amount being borrowed. You'll see why a small business can't issue tradable debt, how secured debt costs less because it's lower risk for the bank, and why transaction costs matter when deciding between a bank loan and a bond issue. The video then moves into timing—matching the loan period to how long you actually need the money—and explains the trade-off between cheaper short term rates and refinancing risk. You'll also understand how credit rating, fixed versus variable interest rates, and tax deductibility all influence the final cost and availability of debt.

Duration: 6m