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a) Long-term forecasts are not only difficult but also vague as uncertainties tend to jeopardise
planning e.g. political and economic factors.
b) Commercial banks are limited by the Central Bank of Kenya in their long term lending due to liquidity considerations.
c) Short-term loans are profitable. This is because interest is high as in overdrafts.
d) Long term finance loses value with time due to inflation.
e) Cost of finance – in the long term, the cost of finance may increase and yet they cannot pass such a cost to borrowers since the interest rate is fixed.
f) Commercial banks do credit analysis that is limited to short term situations.
g) Usually security market favours short term loans because there are very few long term securities and as such commercial banks prefer to lend short term due to security problems.
Kavungya answered the question on March 11, 2019 at 13:25
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