Final answer:
Trade credit is money borrowed from suppliers and a source of short-term financing, helping businesses manage cash flow without an immediate cash outlay. It is used by companies of all sizes and is distinct from bank loans.
Step-by-step explanation:
Trade credit is an important concept in business financing. When examining which statements are true of trade credit, we can address the given options:
- A: Trade credit is money borrowed from suppliers. This is true. Trade credit refers to the deferred payment terms that suppliers offer to their customers. Essentially, suppliers provide the goods or services upfront, and customers agree to pay for them at a later date, effectively 'borrowing' the use of those goods or services in the meantime.
- B: Trade credit is a source of short-term financing. This is also true. The repayment terms for trade credit are usually short-term, often ranging from 30 to 90 days. It provides a way for businesses to finance their operations without the immediate outlay of cash, bridging the gap until they can generate revenue from sales.
- C: Trade credit is only used by small businesses. This statement is false. Businesses of all sizes use trade credit as a tool for managing cash flow and financing operations. It is not exclusive to small businesses.
- D: Trade credit is a source of long-term financing. This statement is false. As mentioned earlier, trade credit is typically a short-term financing solution. It does not usually extend beyond a year and is not designed to fund long-term investments.
- E: Trade credit is money borrowed from banks. This is false. Trade credit is extended by suppliers, not banks. While banks also provide loans and lines of credit, these are separate financial products and not considered trade credit.
Therefore, the correct options that are true of trade credit are A and B: Trade credit is money borrowed from suppliers and Trade credit is a source of short-term financing.