This section is from the book "Business Finance", by William Henry Lough. Also available from Amazon: Business Finance, A Practical Study of Financial Management in Private Business Concerns.
All borrowing is of two general classes, "short-term" and "long-term." This is by no means purely a verbal difference, for there are clear market distinctions between the principles that apply in these two classes. Just where we should draw the line between the two is a difficult question to answer; it is largely a matter of usage. In Wall Street, "short-term" usually refers to obligations having not more than five years to run; "long-term" usually refers to obligations having, say, twenty years or more to run from date of issue. Obligations running in intermediate periods might be put in either one or the other of the two groups. The question is not of much importance; for apart from the securities known as "equipment notes," there are very few which fall within the five-year to twenty-year limits. The chapter which follows will be devoted to "long-term" securities, so that nothing more need be said about them here.
Short-term securities consist of notes, of acceptances, and of accounts payable. The notes are divided into three well-marked classes: (1) merchandise notes, (2) notes discounted at banks, and (3) notes sold to the public. For our present purpose, we will group accounts payable, acceptances, and merchandise notes under the head of "trade credit." After considering this subject, we will take up bank credit and notes sold to the public. This is a convenient division of short-term borrowing which conforms to commercial practice.