5 Reasons Why You Need Short Term Business Loans

For a long time, many small business owners have depended on traditional term loans to inject working capital into their companies.
With the many alternatives to long-term loans, business owners are now taking advantages of short-term business loans that give them access to quick cash that they can pay off quickly and be debt-free to focus on running their business ventures.
In this guide, you’ll learn what these loans are, how they work, why businesses need short-term finance and the different loan types that are ideal for short-term business needs.

Let’s dive in

Short Term Business Loans
Short Term Business Loans

What are short-term business loans?

A short-term loan is a fast business funding option that gives small business owners access to quick cash when they need to handle unexpected emergencies, bridge cash flow gaps, or take advantage of a great business opportunity that would bring additional ROI to their companies.
Think of them as short-term financing that allows you to borrow a loan amount that you can pay off quickly.

How they work

As the name suggests, short-term business loans have a short repayment period, say, between 3-18 months.
You can apply for these loans online by filling out the lender’s loan application forms, wait for notification on approval, and if your request is approved, the cash is credited to your bank account within the same business day.
For your loan request to be approved, your credit scores have to be above 620. Excellent personal credit is an indication that you are a responsible borrower and that your delinquency rate is low.
Lenders prefer borrowers who have been in business for a long time and have consistent annual revenue.
Usually, short-term loans are risky, and to reduce this lending risk, lenders will charge high interest rates. You will also have to make daily or weekly payments since the repayment period is short.
This may affect your cash flows and receivables, and ultimately affect your bottom line. You may also be plunge yourself into a debt spiral since you’ll be forced to borrow more working capital to help meet your needs.
These loans, therefore, should only be used for short-term business needs as they are costly.

Why companies need short term business

When looking for funding for your small business, you need to be sure why you need the money.
Some business needs will require long term loans while others are more short-term and will need fast business loans.

Some of the top reasons why small business owners require short-term business loans are:

  • Handle emergencies and unexpected business expenses
    The business environment is quite dynamic and sometimes surprising situations arise when you least expect or are prepared to handle them.
    Say for example a piece of equipment that’s critical to your business operations stalls. By postponing its repair, your business loses money.
    You’ll need fast business loans to help fund the repair and get back to work.
  • Build business credit
    You can use them as a bridge to better funding
    Short-term loans are a good way of building your business credit to be eligible for substantial business loans with better repayment terms.
    If your lender reports your early and consistent loan repayments to credit bureaus, your credit rating increases, and that gives your company access to better credit facilities.
  • Build business credit
    You can use them as a bridge to better funding
    Short-term loans are a good way of building your business credit to be eligible for substantial business loans with better repayment terms.
    If your lender reports your early and consistent loan repayments to credit bureaus, your credit rating increases, and that gives your company access to better credit facilities.
  • Take advantage of a new business opportunity
    Not all surprises in business are bad. Some bring additional returns that would propel your company to greater heights.
    A supplier could be selling fast moving inventory or machinery at a discount.
    You’ll need quick cash to seize the opportunity before your competitors since such opportunities come once.
  • Bridge cash flow gaps
    If you run a seasonal business, you’ll need cash to support your business operations during the low seasons.
    To be able to make those periodic payments during their downtime, small business owners need access to short term finance to help them bridge the gaps in their cash flows.
  • Growth and expansion
    As your business grows, you’ll need cash to fund it the growth.
    Acquiring new office space, hiring new employees or even marketing your company to reach more customers will need money.
    Fast business loans can help you get the funds you need to support your business expansions.

Types of short-term business loans

Below are some of the most common small business loan options:

  • Lines of credit
    Business lines of credit give you access to a pool of funds that you can draw from when you want to. They are more flexible and allow you to pay back only what you have withdrawn.
    They act like credit cards and are offered by both traditional financial institutions like banks and alternative lenders.
    Once you have paid off the amount borrowed, the money will be revolved for you to withdraw again.
    You can borrow up to $100,000 – $500,000 payable between 1-2 years at an interest rate of 7-12%.
  • Invoice factoring
    It involves selling off your invoices at a discount.
    The lender will give you a lump sum for a percentage of your invoice amount and the rest when the invoices are finally paid.
    The factoring company then takes charge of pursuing payments from your customers. And they do this at a fee.
    This mode of business financing is ideal for businesses that are struggling with their cash flows and cannot wait for their customers to pay up.
  • Invoice financing
    Unlike factoring, invoice financing involves using your receivables as collateral to get business funding.
    Lenders focus more on the value of your invoices than any other aspects of your business.
    It’s also ideal for companies that are struggling with their cash flows, and you can apply for these loans online and get the funding that you need to sort your business needs.
  • Merchant cash advance
    Although they are quite expensive, cash advances have a high approval rate and give you access to cash for a percentage of your future credit sales.
    Usually, lenders charge a factor rate of between 1.10 – 1.50, and you can borrow from $5,000 – $500,000 payable in 3-18 months.
    To fuel growth and expansion, a business needs funding. Depending on the purpose of the loan, you can apply for either short-term business loans or term loans.
    We’ll do our best to connect borrowers with reputable lenders. Fill out our loan application forms today, and let us save you the headache of looking for lenders.

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