Bobos Jojoba Products Ltd. has $600,000 in current assets of which $200,000 are considered to be permanent current assets. They also have $1,000,000 in capital assets. Their tax rate is 40%. They want to finance all of their capital assets and one-half of their permanent current assets with long-term financing at 12%. The balance would be financed with short term financing at 10%.

They could reduce their interest expense by using more short-term financing. Give two reasons why they might not want to do this.