Which type of financial instrument is primarily used for short-term funding needs?

The primary choice for short-term funding needs is commercial paper. This financial instrument is typically issued by corporations to meet immediate cash flow requirements, such as financing inventory or covering accounts payable. Commercial paper is usually unsecured and has a maturity period that typically ranges from a few days to up to 270 days, making it an ideal solution for short-term financing.

In comparison, bonds are generally long-term debt instruments, often utilized for financing larger capital projects or long-term investments, and they typically have longer maturity periods, often extending well beyond one year. Equities represent ownership in a company and are generally used for long-term capital raising rather than for addressing short-term liquidity gaps. Real Estate Investment Trusts (REITs) are focused on investing in income-generating real estate properties and are not designed for short-term funding needs, as they involve longer-term investments in real estate assets.

Therefore, commercial paper stands out as the leading choice specifically tailored for companies seeking to fulfill short-term financial obligations efficiently.