Aardvark needs some short-term financing to meet a cash-flow gap while

QUESTION

Aardvark needs some short-term financing to meet a cash-flow gap while it makes immediate capital expenditures. Which of the following, if true, strengthens the case for the company using a credit card for this purpose?

A) Family members of the company owners have a lot of liquid assets.
B) The company is not sure when it will be able to repay the money.
C) The company expects to be able to repay the money next month.
D) The company needs to obtain a line of credit without interest.
E) The company can provide collateral for a secured loan.

ANSWER

Answer: C
Explanation: C) Business credit cards can be a viable source of very short-term financing if the company expects to pay off the balance within a month, thus avoiding potentially high interest charges. If the money can’t be repaid within a month (Choice B), then family members (Choice A) who are the source of short-term loans are preferable to a credit card advance. The line of credit from a credit card is without interest for only a very limited time—usually a month or less, depending on the card (Choice D). Choice E: Having collateral strengthens the case that the company could obtain a bank loan, in which case it would not need to use a credit card.