Short-term business loans are a special kind of loan made to small business owners to bridge a temporary gap in the cash flow. The common reasons for short-term business loans of all types can vary, depending on your needs. For example, the loan term can be 90 days or 15 months.
Some of these loans are unsecured, meaning the lender requires no collateral. Because the risk is higher for the lender, the interest rate on unsecured loans may be higher. Some loans require collateral in the form of inventory, accounts receivable, equipment, or other property. These secured loans generally have a lower rate of interest than unsecured loans.
Short-term business loans can be a tremendous help if you are a small business owner facing a temporary cash-flow problem. Here are 7 situations in which a short-term business loan would be useful:
Short-term business loans are available for both new and existing businesses. Therefore, a promising entrepreneur can finance the start-up costs of her business by obtaining a short-term loan. This is particularly helpful if you simply don’t have the cash to finance these costs and need a boost to get your business going.
Accounts Receivables vs. Payable
Many businesses are cyclical in nature, and there is often a gap between accounts receivables (cash coming in) and accounts payable (cash going out). If you know this is a temporary situation and your receivables will be coming in quickly, a short-term loan will help you bridge the gap without falling behind on your bills.
A short-term business loan can cover any short-term operational costs you may have. For example, if you need to hire extra staff during a seasonal push or a particular piece of equipment to finish a job, a short-term loan can finance your needs to accomplish your goals.
Emergency Repairs and Maintenance
A short-term loan can help you make it through an emergency situation. For example, a short-term loan can finance the repair if your computer crashes, and you cannot run your business without it.
Short-term loans have a briefer-than-usual maturation period than regular loans, which makes them ideal for any temporary cash flow situation. If you don’t have the money now but can depend upon money coming in within a certain period of time, a short-term loan would be a good way to fill the need.
Short-term business loans help in a crunch because they offer immediate approvals, meaning you can get cash quickly to help you through a crisis. However, they can be used cautiously because they often come with a higher APR than other loans. Think of them as a valuable tool in your cache of small business strategies. If you feel your situation justifies a short-term loan, find a reputable lender and a loan officer you trust. They will help you determine the best loan for your business.
Inventory financing is when a business seeks funding to purchase salable goods for its business. Keeping the shelves stocked with the merchandise your customers want to buy is an important part of running a successful business. Under the right circumstances and with the right loan terms, financing inventory purchases can be a smart business move—and a good reason to get a small business loan. This is particularly true if you have an opportunity to buy that inventory at a discount.
Funding expansion to fuel a growth opportunity is why many business owners look for extra capital. Some business owners might have access to investors with the ability to provide capital when needed. However, many business owners choose to finance growth. When a business owner decides to pursue a business loan, it’s important to recognize that the right loan can negatively impact a business at the wrong time. Evaluating your current situation is critical to ensure a business expansion loan makes sense and the timing is right.
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