The more short-term financing there is relative to long-term financing, the riskier the financial structure.

Question

Quizplus · Accepted Answer

Short-term financing typically comes with higher interest rates and needs to be refinanced frequently, making it a riskier form of financing compared to long-term financing. A company that relies heavily on short-term financing may struggle to meet its obligations if it cannot secure new financing when the existing financing matures. Therefore, having more short-term financing relative to long-term financing increases the risk of financial instability.

The More Short-Term Financing There Is Relative to Long-Term Financing