Most of the time the private commercial banks discourage to finance the long term loans due to some relative risky and problems. These are:
1) Lower Rates: Long-term loan normally have lower
interest rates than short-
term credits.
2) Slow Cash Inflow: A long-term
debt obligation also prevents the faster
cash
inflow.
3)
Risk Involvement: Generally, the level of
the
interest rate is depends upon the risk involved with making the loan. In case of
default, long-term
loan includes a greater
span of time.
4)
Credit turn-over
loss: The long-term loan will be paid over
a loan period. So
the
lender get recovered the amount by a long period as the lender has missed the
rapid credit turn over.
5) Long term debt is
often costly to service
6) The cost of capital is higher
in
case of long term debt