Short-term financing is riskier than long-term financing since,during periods of tight credit,the firm may not be able to rollover (renew) its debt.This is especially true if the funds are used to finance long-term rather than short-term assets.

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Short-term financing typically involves debt that must be paid back within a year, while long-term financing lasts for several years or more. During times of tight credit, lenders may be hesitant to extend short-term credit to businesses, which can lead to difficulties renewing or obtaining new loans. In contrast, long-term financing usually involves a more stable repayment schedule and may be less affected by short-term fluctuations in credit conditions. Additionally, using short-term funds for long-term assets, such as fixed equipment or real estate, exposes the firm to greater risk since the loan may come due before the company has realized the full benefits of the investment.

Short-Term Financing Is Riskier Than Long-Term Financing Since,during Periods of Tight