Final answer:
Companies with a solid track record of revenue or profit can more confidently seek short-term financing through banks or bonds, maintaining control over their operations without shareholder intervention.
Step-by-step explanation:
Many companies have a track record which gives them confidence in seeking short-term financing. When a firm has a record of at least earning significant revenues, or even better, earning profits, it can make a credible promise to pay interest on its debts. Therefore, it becomes feasible for the company to borrow money.
Firms have two main methods for borrowing: obtaining loans from banks or issuing bonds. A significant benefit to local banks in this process is that they do not need to hold significant extra funds to make a loan, because they typically plan to sell the loan shortly after it is issued, pooling it into a financial security. This strategy allows them to provide financing while mitigating the risk of having the loan on their books for an extended period.
At the same time, accessing financial capital by borrowing money enables a firm to maintain control of its operations, as it is not subject to shareholders in the same way it would be if it were to issue stock. While borrowing commits a firm to scheduled interest payments regardless of its income, this method does not require selling off company ownership to the public, which would involve becoming responsible to a board of directors and the shareholders.