# Loan, short-term (short-term loan)

- Canonical URL: https://www.gerhardmerk.de/loan-short-term-short-term-loan
- Post ID: 591088
- Modified: 2023-07-25T21:02:31+00:00
- Language: en

## Definition

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. Attention: The financial encyclopedia is protected by copyright and may only be used for private purposes without express consent! 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/

## Machine-readable

- Generator: Merk Knowledge 1.1.1