The Benefits of Short Term Business Loans

When most people think of small business loans they think of the traditional five year or ten year term loans available from the bank or the credit union. And as a small business owner, there are several reasons to consider applying for a business loan. Maybe you are trying to get your business off the ground or take it to the next level. Or it could be that you are trying to solve some short term cash flow problems. Companies typically utilize short term business loans rather than long term, as they might need asset-based financing when they’re first getting off the ground, and in general, this type of financing is used more for working capital.

Short termbusiness loan is usually aligned with a company’s operational needs. It provides shorter maturities than long term, which makes it better suited for fluctuations in working capital and other ongoing operational expenses. In simple words, short term loans are typically designed to provide small business owners with quick access to working capitals to address short term financial issues. As with a traditional business loan, you will typically get the loan funds in lump-sum payments, then pay it off within one or two years.

Types of Short-term Loans

Whether you are a brand new business or an established business, there are a few different short term business loans from which you can choose.

1. Term Loans

These loans are similar to traditional bank loans, but with a shorter repayment term. In general, you will have a hard time finding term loans with short term periods from traditional small business lenders. Instead, you will likely need to work with an online lender to get what you need.

2. Lines of Credit

Most business lines of credit offer long repayment terms. But some online lenders offer short term credit lines if you prefer that set up over term loans.

3. Vendor Credit

Also called supplier credit, it involves working with one or more of your vendors to create a credit arrangement, where you typically get some time, typically 30, 45 or 60 days, to pay for a product or service they provide instead of cash on delivery.

4. Invoice Financing

Invoice financing is a short term small business loan that’s considered a cash flow loan instead of term loan. You can apply for invoice financing if you have sent a client or customer an invoice and haven’t received the payment yet.

Benefits of Short Term Loans:

●      There are times when ramping up a new project requires upfront costs that might exceed a business’s ability to cover with cash flows. In that case getting in and out of the financing quickly at a lower total dollar cost could make more sense than making payments on a long-term loan for several years.

●      Have you always dreamed of starting your own business? Do you just need a few supplies to get started? Then, you may want to take out a short term loan to cover your startup cost.

●      Running a business is challenging, and in some cases, you may not have enough cash in hand to cover various expenses. A short term loan can be an effective way to take care of the gaps in cash flow. If you expect your revenues to increase soon, a short term loan makes sense. For instance, you have a seasonal business and the work required is only in winters so you can’t afford to buy any supplies or inventory. However, you know that if you take out a loan you will be able to repay it easily. In situations like this, you may want to turn to a short term loan. Doing so requires the business to ensure that you have sufficient cash flow during that slow period to make larger periodic payments often associated with short term loans.

And, many times, short term business loans may come with faster approval rates than more traditional long term financing at banks.

What is a Small Business Line of Credit and How it Works?

If you own a business you probably already know that sometimes you need to access the working capital to help you grow. Even the most successful small business can experience late invoice payments, urgent unplanned expenses and other short term situations where the cash flow is less than certain. In cases like these, access to some extra funds can mean the difference between closing down your dream project or surviving the tough times and coming at the top.

What is a business line of credit?

A business line of credit is a key component of managing small business financing health. Unlike a business loan, a business line of credit acts as a ready cash at times when needed. A business line of credit can be a small businesses lifeline in times of emergency or even seasonal cash flow tightening.

Obtaining a line of credit for your small business can help your entrepreneurial spirit to take the company to the next level. It can be a more affordable option than a business loan because you pay interest only on the money you utilize.

A critical difference between terms of credit and term loan is that lines of credit are revolving. That means you can use the funds upto your approved amount, then repay what you have used to make the funds available again.

How could a small business benefit from a business line of credit?

A business line of credit is very flexible in comparison to other types of loans. In most cases, you won’t have to specify the particular use for your loan. This flexibility allows small businesses to use a business line of credit as a safety net or insurance policy against the gaps in cash-flow or seasonal lulls in business. And when it comes to running a business, having ample cash flow is imperative. Due to this reason, many business owners apply for a business line of credit.

These credit lines are similar to a credit card where the line is open and available for you to use and you only pay interest on the line you draw.

Since a small business line of credit can be such an affordable and convenient source of capital, it has become a common tool for small business owners.

How does a business line of credit work?

Business lines of credit work in a distinct way. First, unlike a business term loan, you don’t need a lump sum of cash deposited in your business bank account and pay it back incrementally. Instead, you get a credit line that you borrow against and pay back your money through weekly or monthly payments, as you use it. The credit line is revolving or replenishes when you repay the full amount.

You work with a lender to gain approval for a certain amount of money- the top of your credit line- and then you can draw against the business line of credit as you need it.

The pros of a business line of credit:

As a business owner, you are going to have times when working capital is tight, which can be a real issue. Working capital allows you to operate your business, allowing you to afford payroll, maintain inventory and pay for other consistent costs like rent and utility bills. Mentioned below are some of the benefits a business line of credit can provide to your small business:

●      Evens out cash flow during slow seasons

●      Allows you to pay for what you use

●      Improves business adaptability

●      Builds business credit

When could applying for a business line of credit be a better option rather than traditional loan?

●      Does your business regularly need access to short term capital to meet day-to-day business expenses?

●      Is your business a seasonal business where a credit line can help you bridge your busy seasons?

●      Do you usually need extra capital to ramp up your business?