An installment loan is a type of long-term financing, and it would have a maturity date of at least one year in the future. Installment loans are generally used for the purchase of vehicles and other smaller fixed assets. Financing that provides additional working capital to support the busy season is short-term financing, because it will be repaid when the busy season is over and the receivables from the sales are collected. So an installment loan would not be appropriate for this purpose.
A short-term loan is a loan with a maturity date of less than one year in the future. A short-term loan, either secured or unsecured, would be an appropriate type of loan to be used to finance the need for a fixed amount of additional working capital during the busy season. The collection of receivables from the selling season is the source of the repayment of the loan, so the loan should be paid off about a month following the end of the company’s busy season. Therefore, the loan should have a maturity date of about one month beyond the end of the company’s busy season, so the company will have a chance to collect the receivables from the selling season to use to pay off the loan. (If the loan cannot be paid off on its maturity date, then something is wrong, because it means the company has used the collection of the receivables for something other than to pay off the seasonal loan.)
A transaction loan is a loan made for a specific purchase, such as a mortgage loan made for the purchase of real estate or a term loan made for the purchase of equipment. Usually, the disbursement check is made out to the seller of the item, so the lender can be certain that the loan is being used for its designated purpose. A working capital loan such as the one mentioned in this problem would not be called a transaction loan, because it would not be used to make just a single purchase from a single supplier. It would probably be used for multiple inventory purchases from multiple suppliers, possibly over a period of several months. So it would not be practical for the loan to be disbursed by means of checks made payable to each of the suppliers.
An insurance company term loan, or any term loan no matter who the lender is, would be used for long-term financing. A term loan is a loan made to a business for long-term needs, such as purchase of fixed assets, that has a maturity date of one year or more in the future. Financing that provides additional working capital to support the busy season is short-term financing, because it will be repaid when the busy season is over and the receivables from the sales are collected. So a term loan would not be appropriate for this purpose.
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