Medium-Term Sources of Finance
In today's economy many business could benefit from additional capital for support. Because business operations are costly, organisations search for capital through finance sources. Short-term sources include a credit line through a commercial bank, while long-term sources include equity shares of a major corporation or long-term loans. Medium term sources of finance may provide the perfect balance between long- and short-term sources, through several options.
While short-term financing provides bank loans of up to three years, medium-term loans are offered for three- to ten-year periods. The loan interest is usually set at a margin dependent on the riskiness and credit rating of the borrower. The loan interest can be variable or fixed. It can be adjusted periodically throughout the life of the loan at an amount above the bank's base rate.
Medium-term currency bonds are issued to investors through foreign and domestic entities. Maturity bands for medium-term investors range from periods of 9 months to up to 30 years. Government bonds also have the benefit of being scrutinised regularly by policymakers for better yields and interest rates.
Banks can also issue finance leases, which are more competitive and thus sometimes preferred by some foreign supporters over traditional loan financing. It is also a useful option when other financing sources are unavailable. For example the Export Import Bank of the United States (Ex-Im) will provide up to £6 million to creditworthy foreigner investors, which must be repaid in a seven-year period.