Short-Term Credit

a credit used in the process of production and distribution for the circulation of working capital (under capitalism) or of circulating assets (under socialism). Such credit is usually granted for a period of up to one year.

Under capitalism. In the capitalist nations, short-term credit is employed in two forms: commercial credit, granted by industrial and commercial capitalists to one another in selling goods (the commodity form), and bank credit (the monetary form).

Under the conditions of developed capitalism, bank credit is the typical form of short-term credit. The capitalist banks, which hold most of the loan capital, act as the main creditors. In many instances, money loans also result from commercial credit, because the capitalist who has not demanded immediate payment for the goods usually discounts the purchaser’s promissory note at the bank before the payment date becomes due. The objects of short-term credit vary: the loans may be granted against raw material stocks or unsold finished goods. The loans may be granted against promissory notes or receivables. Small enterprises have to surrender to the bank as a form of collateral the right to dispose of the credited objects.

Short-term credit is used most widely in the seasonal sectors of industry and trade, where there is a high level of investment in working capital. Short-term credit is also used for the circulation of securities in the sphere of state credit (the issue of treasury notes and certificates with terms from three months to one year, designed to attract capital free for short periods of time) and is closely related to stock market speculation. Loans made against securities to stock-market brokers and dealers are an important item in the assets of capitalist banks. During economic crises the collapse of the credit superstructure, which has become swollen under the conditions of the preceding boom, causes a sharp deterioration in business conditions and impedes recovery. Short-term credit has also spread widely in the area of foreign trade, where it is used in crediting business deals.

Under socialism. Short-term credit operates in the form of direct bank credit under socialism. It is used on a planned basis by the state for maintaining extended socialist reproduction (net capital investment). Short-term credit is granted to all sectors of the national economy for satisfying short-term needs for borrowed circulating assets, and it is also extended in the form of consumer credit. Industry and trade receive the largest share of the total short-term credit paid out to the economy. In 1971 these sectors were responsible for 63 percent of the total short-term investments in the Soviet economy. Industrial enterprises, both seasonal and nonseasonal, use loans principally against raw materials and other production stocks. For enterprises with non-seasonal production, short-term credit is characteristically used for work in progress.

In the course of carrying out the post-1966 economic reform in the USSR, credits have been granted more widely against assets to improve production (for restructuring the range of products offered and for improving the quality of the products). In exceptional instances, well-operating enterprises have the right to obtain blank (confidence) credits and loans, as well as payment credits, for making up a shortage of circulating assets. The volume of short-term credits issued by the Gosbank (State Bank) of the USSR to the economy was 572 billion rubles in 1965 and exceeded 1 trillion rubles in 1972. Short-term credit is extended beyond the enterprise’s own circulating assets (above the norm), on shared principles (turnover credit), and without considering the enterprise’s own circulating assets (unilateral participation of credit).

The short-term credit is repaid as the circulation of the funds is completed, that is, as the funds are freed principally through the sale of the product. For certain types of loans, the repayment dates are fixed ahead of time. Thus, the maximum term fixed for the use of payment or blank credits is 30 days, whereas loans for temporary needs are granted for up to 60 days. In servicing the enterprises, Gosbank sets preferential crediting conditions for well-run industrial enterprises that fulfill the state profit and product sales plans and maintain their circulating assets. The bank applies special crediting conditions and credit sanctions (such as higher interest rates, the restriction or complete denial of credit) to inefficient enterprises.