Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What is considered a short-term financing source?

1. Venture capital

2. Government grants

3. Bank borrowings

4. Equity financing

The correct answer is: Bank borrowings

Short-term financing sources are typically those that are intended to be repaid within a year. Bank borrowings fit this definition perfectly. Businesses often use bank loans or lines of credit to manage cash flow, cover seasonal expenses, or fund immediate operational needs. These loans are structured for relatively quick repayment, making them a practical choice for short-term financing. In contrast, venture capital involves funding from investors in exchange for equity, which generally represents a longer-term financing strategy aimed at growth rather than immediate operational needs. Government grants are typically aimed at supporting specific projects or goals and usually do not require repayment, placing them outside the realm of financing in terms of repayment timelines. Equity financing involves raising capital by selling shares of the company, which is also considered a longer-term strategy, as it dilutes ownership and is not intended for quick repayment like short-term loans.