How do short-term loans improve liquidity?

Short-term loans enhance liquidity primarily by providing immediate cash to meet urgent financial needs. When a business or individual encounters unexpected expenses or a temporary cash flow shortfall, short-term loans can quickly supply the necessary funds. This immediacy is crucial because it allows the borrower to maintain operations, manage day-to-day expenses, or take advantage of time-sensitive opportunities without delay.

In contrast, options focused on delayed payments or low interest rates do not directly address how short-term loans contribute to enhancing liquidity. Additionally, while some short-term loans may not require extensive documentation, this characteristic is not universally true and does not fundamentally relate to the primary purpose of improving liquidity through rapid access to funds. Thus, the essence of short-term loans lies in their ability to provide quick financial relief, making them an effective tool for improving liquidity.