Commercial Bank for Short Term Loans
Purpose Why Commercial Banks Prefer To Lend Short Term Loans
a) Long-term forecasts are not only difficult although also vague as uncertainties tend to jeopardize planning as example of economic and political factors.
b) Commercial banks are limited with the Central Bank of US in their long term lending due to liquidity considerations.
c) Short-term loans are gainful. Since interest is high as in overdrafts.
d) Long term finance loses value along with time because of inflation.
e) Cost of finance - in the long term, the cost of finance may increase and yet they cannot bypass that a cost to borrowers as the interest rate is fixed.
f) Commercial banks do credit analysis that is limited to short term conditions
g) Generally security market favors short term loans since there are very few long term safeties and as that commercial banks prefer to lend short term because of security problems.