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Discuss the classifications of debt Finance.

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1.short-term finance
This ranges from 1 month up to 4 years and is given to customers known to the bank or to lenders. The agreement of this loan will mention both the repayment of principal and interest, and must identify whether it is simple or compound interest. For principal, it has to be paid over some time. This finance usually secured and the terms of the loan will be restrictive. Usually be invested in an area acceptable to the bank or lender. Usually this finance should be used to solve short-term liquidity problems.

2.Medium –term finance.
This finance will be in the business for a period ranging between 4-7 years. This term is relative and will depend upon the nature of the business. This type of loan is used for investment purpose and is usually secured but the security should not be sensitive to the company’s operations. The finance obtained must be investigated while respecting the matching approach to financing i.e the term and pay back period must be matched. This type of finance if the most popular of all debt financing because most of the business will need it both in their growing stages and also their mature stages of development.

3.Long-term finance
This is a rare finance and is only raised by financially strong companies. It will be in business for a period of 7 yeas and above. This finance is used to purchase fixed assets in particular during the early stages of a company’s development. It is always secured with a long-term fixed asset. Usually land or buildings. Its investment, however must obey the matching approach. In all, the companies needing such finance do not have to be known to the lenders.

sharon kalunda answered the question on April 16, 2019 at 13:53

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Discuss the classifications of debt Finance.

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