The company has gotten a breakthrough that will take away its financial struggles. However, the company cannot afford to wait for two years to start enjoying the returns because it will run out of cash. The good thing is that the company now has a bright future to bank on and use in sourcing for cash that they will use for daily operations. Until the new product is ready for to be sold to the public, the company will rely on an alternative source of cash such as short term debt financing and investing in short-term but profitable projects (Erel, Myers, & Read, 2015).
Short-term debt financing refers to the act of involving in financial obligations to be fulfilled within a short period, usually one or two years. The types of debt financing that the company will rely on include overdraft, letter of credit, and short-term loans (Qi, Roth, & Wald, 2017). The company will make an overdraft arrangement with the bank to allow the organization to withdraw more money than the available amounts in its account. The company will also obtain a letter of credit from its banks to facilitate credit purchases with the promise that the amounts will be settled after the two years. The organization will also rely on short-term loans for operational cash and capital for short-term projects (Cole & Sokolyk, 2018).
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Other than debt financing, the company will outsource cash by engaging in short-term profitable projects. The company leadership and stakeholders will meet to deliberate on the best quick projects to invest in to make quick cash that will run the business before the other project matures. The new product development project will be good news to stakeholders such as investors and owners. They will be motivated and willing to invest in the supporting projects to keep the business running (Qi et al., 2017). The company’s suppliers will also be willing to support the short-term projects with the aim of doing further business with the organization when it gets stable.
References
Cole, R. A., & Sokolyk, T. (2018). Debt financing, survival, and growth of start-up firms. Journal of Corporate Finance , 50 , 609-625.
Erel, I., Myers, S. C., & Read Jr, J. A. (2015). A theory of risk capital. Journal of Financial Economics , 118 (3), 620-635.
Qi, Y., Roth, L., & Wald, J. (2017). Creditor protection laws, debt financing, and corporate investment over the business cycle. Journal of International Business Studies , 48 (4), 477-497.
