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.