Loan, short-term (short-term loan)

A loan granted by a bank on a short-term basis and – unless otherwise specified – in this case for up to two years. From a bank’s point of view, the longer the term of a loan, the greater the risk of default. This is because it is always difficult to assess the value of collateral tendered by the customer over a longer period of time. Therefore, a bank is more inclined to extend a short-term loan than to grant a long-term loan. – This behavior has been and still is misinterpreted, and then it is claimed that a bank makes a higher profit – from short-term loans and their extension (prolongation; makes small businessmen (applicants for credit) dependent on it, insofar as the debtor is dependent on the prolongation of the loan, – thus introduces great uncertainty into the business of the borrower, because he must always reckon with a refusal (refusion) to extend the loan, and – because the banks refuse to extend the loan or even cancel it at the slightest sign of a crisis. This would have the effect of amplifying the fluctuations in the business cycle of the economy. – This line of argument is by no means conclusive. By its very nature, a short-term loan is earmarked for short-term projects in a company. For longer-term planning, above all for investments and buildings and machinery, a bank offers companies a whole range of other financing options. To the extent that private households take on long-term debt for their own homes, loans from building societies are available. – So if a company pursues a financing policy that is highly questionable from a business point of view and recklessly wants to finance long-term planning with short-term credit, this can hardly be blamed on the banks. – See default rate, expected, probability of default, credit risk, industry concentration, loan, involuntary long-term, loan-versus-paper, crop-support loan, money market segments, credit event, spread of terms, credit risk premium, credit quality, lending rule, loan commitment, irrevocable, micro-finance, probability of default, rating steps, risk, risk transparency, seasonal credit, term risk, term loan, underpinning, validation, event credit, cyclicality.

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk
https://www.jung-stilling-gesellschaft.de/merk/
https://www.gerhardmerk.de/