Final answer:
Debt financing is the most common source of short-term funds when collateral is available, often utilizing bonds or bank loans.
Step-by-step explanation:
The most frequently used source of short-term funds when collateral is available is debt financing.
Debt financing typically includes instruments like bank loans and bonds. A bond is a financial contract where the issuer is obligated to pay back the borrowed amount along with interest over a specified period. This can include various types of bonds, such as corporate bonds issued by firms, municipal bonds issued by cities, state bonds by states, and Treasury bonds by the federal government. When a firm needs to access financial capital, it may opt for debt instruments like bonds over equity financing because it allows them to maintain control over operations and avoid dilution of ownership.