Working capital funding policy

A matching policy broadly finances long-lived assets and permanent current assets with long-term funds, and seasonal current assets with short-term funds. An aggressive funding policy uses more short-term finance, including for some permanent needs, increasing refinancing and rate exposure. A conservative policy uses long-term funds for part of fluctuating needs, which can create temporary cash surpluses but reduce refinancing pressure. Relative financing costs depend on market conditions; short-term borrowing is not invariably cheaper. Distinguish funding policy from how much working capital the business chooses to hold.