## Sources of Short-Term Bank Finance
Banks provide several facilities to meet a firm's short-term and urgent working capital needs. Each is governed by a sanctioned limit set by the bank.
### Key Facilities
| Facility | What it is |
|---|---|
| Bank Overdraft | A short-term borrowing facility for urgent funds. The bank sets a limit and can call back (recall) the overdraft on short notice. |
| Bills Discounting | When a company sells goods on credit, it draws a bill on the buyer and gets it discounted with the bank (receives cash now, less a discount). The bank fixes a discounting bill limit. |
| Bills Acceptance | The company draws a bill of exchange on the bank; the bank accepts it, committing to pay the amount on a specified future date. |
| Line of Credit | A bank's commitment to lend a certain amount of funds on demand, up to a specified maximum lending limit. |
| Letter of Credit (LC) | An arrangement where the bank guarantees payment or negotiates documents on behalf of a customer under specified terms and conditions. |
| Bank Guarantee | The bank guarantees payment to a third party (beneficiary) on behalf of its client, ensuring the client's obligations are met. |
### How to remember the distinction
- Overdraft / Line of Credit → the bank lends you money.
- Bills Discounting → the bank buys your receivable early.
- Bills Acceptance / LC / Bank Guarantee → the bank lends its creditworthiness (a promise to pay), not necessarily cash upfront.