Ecinomoc Sustainability

Question 1

What is short term borrowing?

Answer 1

Overdraft / Trade Credit

Short term borrowing typically involves loans or credit that are expected to be paid back within a year.

Question 2

What is long term borrowing?

Answer 2

Mortgage / Term Loans

Long term borrowing is generally for periods exceeding one year and is often used for significant investments.

Question 3

What is an overdraft?

Answer 3

A 90 day loan that allows the borrower to withdraw more than their account balance

Overdrafts are often used for short-term financing needs.

Question 4

What is the typical duration of a mortgage?

Answer 4

Up to 20 - 40 years

Mortgages are commonly used for purchasing property and are secured against the property itself.

Question 5

What are the advantages of short term borrowing?

Answer 5

• No interest if paid in time
• Convenient cash flow
• Helps with immediate cash needs
• Lets the farmer get seed in ground when needed
• Spreads spending over the life of production
• Low interest rates
• May have an interest-only period

Short term borrowing can provide quick access to funds without the burden of high interest.

Question 6

What are the disadvantages of short term borrowing?

Answer 6

• Interest must be paid in time
• Fertilizer may not be loaned back
• High interest rates (18-20%)
• Hard to get approved sometimes
• Risk of losing property

Disadvantages may include the pressure of repayment and the potential loss of collateral.

Question 7

Fill in the blank: A _______ is a type of long term borrowing secured against land or property.

Answer 7

Mortgage

Question 8

What is the typical duration of a term loan?

Answer 8

2 - 7 years

Term loans are often used for specific projects or investments and must be repaid within the agreed timeframe.

Question 9

True or False: Short term borrowing can help manage cash flow for farmers.

Answer 9

True

Question 10

What are some common examples of items financed through short term borrowing?

Answer 10

• Seeds
• Fertilizer
• Equipment
• Insurance
• Workers

These items are essential for agricultural production and may require immediate funding.

Question 11

What is a disadvantage of long term borrowing?

Answer 11

Risk of losing property

Long term borrowing often requires collateral, which can be forfeited if repayment obligations are not met.