THE BENEFITS OFFERED BY LONG-TERM FINANCING COMPARED TO SHORT TERM, MOSTLY RELATE TO THEIR DIFFERENCE IN MATURITIES. LONG-TERM FINANCING OFFERS LONGER MATURITIES, AT A NATURAL FIXED RATE OVER THE COURSE OF THE LOAN, WITHOUT THE NEED FOR A ‘SWAP.’ THE KEY BENEFITS OF LONG-TERM VS. SHORT TERM FINANCING ARE AS FOLLOWS:
Coincides with Long-Term Strategy – Long-term financing enables a company to align its capital structure with its long-term strategic goals, affording the business more time to realize a return on an investment. Matches Duration of Asset Base with Duration of Liabilities – The maturity associated with long-term financing better coordinates with the typical lifespan of assets purchased. Long-Term Support from Investor – A company can benefit from having a long-term relationship with the same investor throughout the life of the financing. With the right investor, companies stand to gain from a long-term relationship and partnership, in addition to ongoing support. Being that the financing is long term, a company will not have to repeatedly bring in new financing partners who may not understand the business as well, which can often happen with short-term financing. Limits Company’s Exposure to Interest Rate Risk – Long-term, fixed-rate financing minimizes the refinancing risk that comes with shorter-term debt maturities, due to its fixed interest rate, thus decreasing a company’s interest rate and balance sheet risk. Diversifies Capital Portfolio – Long-term financing provides greater flexibility and resources to fund various capital needs, and reduces dependence on any one capital source. It also enables companies to spread out their debt maturities.