Medium Term Financing Example

A medium-term financing, As its name implies, it is between the short term and the long term; but it is not limited to that, since it shares some characteristics with each of the other financing.

The time of this financing is greater than one year and less than five, and is used when the requirement The economy is high but the recovery capacity is not enough to pay for financing at long term.

A medium-term financing can be used to purchase merchandise and pay off debt in a period of two to five years, as long as sales allow the recovery, these financings are attributed an interest that may fluctuate according to an arrangement preset.

In medium-term financing, an agreement is usually made that formalizes said relationship, and the expenses of said agreement are increased to the debt contracted.

Example of medium-term financing:

The Mendieta family decided to create a small furniture manufacturing company; They did not have enough capital to carry out their project, and therefore to be able to get the property, the tool and the material to carry out the project, they made the decision to request medium-term financing from Bancosur S.A. de C.V.B, who granted them a loan of $ 200,000.00 pesos; In order to formalize said financing, the general representative signed 18 promissory notes that would cover the debt, with a 4% monthly interest in case of late payment.

They acquired the material, and began to manufacture furniture; After six months of starting the business, they began to have problems paying the borrowed money, and decided to partner with another family of carpenters, managing with the additional funds to manufacture enough furniture to sell the furniture to a furniture store renamed; from then on, the orders began to rise and the debt recovery could be solved in the term agreed in the financing contract between the Mendieta family and Bancosur S.A of C.V.B.