Page 64 - FINAL CFA SLIDES DECEMBER 2018 DAY 11

LOS 38.g: Evaluate the choices of short-term Session Unit 11:
funding available to a company and recommend a 38. Working Capital Management
financing method., p.91

Sources of Short-Term Funding From Banks, p.91

Lines of credit are used primarily by large, financially sound companies.

• Uncommitted line of credit –extended for a certain amount but not honoured if circumstances change.
• Committed (regular) line of credit –bank “commits to” for some period of time.
• Revolving line of credit. Typically for longer terms, sometimes as long as years. Along with committed
lines of credit, revolving credit lines can be verified and can be listed on a firm’s financial statements in
the footnotes as a source of liquidity. tanties

Blanket lien gives a lending bank a claim to all current and future firm assets as collateral in
case the primary collateral is insufficient and the borrowing firm defaults.
• Banker’s acceptances are used by firms that export goods; its a guarantee from the bank of the firm

that has ordered the goods stating that a payment will be made upon receipt of the goods. The
exporting company can then sell this acceptance at a discount in order to generate immediate funds.
• Factoring -the actual sale of receivables at a discount from their face values. The “factor” (the buyer of
the receivables) takes responsibility for collection and the credit risk of the receivables portfolio.

Non-Bank Sources of Short-Term Funding. p91

Commercial paper –issued by large creditworthy companies to smaller poor credit firms.
Whether the firm sells the paper directly to investors (direct placement) or sells it through

dealers (dealer-placed paper), the interest costs are typically slightly less than the rate they
could get from a bank.