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What is a common reason for a company to obtain a short-term loan?

To invest in long-term assets

To cover immediate operational expenses

A common reason for a company to obtain a short-term loan is to cover immediate operational expenses. Businesses often experience fluctuations in cash flow due to varying sales cycles, seasonal demand, or unexpected expenses. Short-term loans provide quick access to funds that can be used for day-to-day operational needs, such as purchasing inventory, paying employees, or covering other immediate costs that arise.

This financial flexibility allows businesses to maintain their operations without interruption while they await incoming revenue. The focus on short-term funding specifically aligns with the immediate nature of these expenses, distinguishing it from options like investing in long-term assets or paying off long-term debts, which typically require different financing strategies. Short-term loans are specifically designed to meet urgent financial needs rather than serve long-term strategic goals.

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To pay off long-term debts

To expand into new markets

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