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What separates a short-term loan from a long-term loan?
AThe short-term loan comes due within one year
BThe short-term loan is always under $100,000
CThe short-term loan is always paid in advance
DThe short-term loan carries no interest at all
Answer & Solution
Correct answer: A. The short-term loan comes due within one year
1. A short-term loan comes due within one year.
2. A long-term loan has a maturity greater than one year.
3. Short-term financing appears as a current liability on the balance sheet and is used to finance current assets and support operations.
4. Size, prepayment and interest have nothing to do with the split, which turns purely on maturity.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 16 "Understanding Financial Management and Securities Markets", section 16.3 Obtaining Short-Term Financing_
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