What to consider
Do you need a cash flow solution to your financial needs? Businesses need to be able to access new opportunities by keeping cash on hand. There are many different loan facilities available to business owners but short term loans are gaining popularity due to their easy lending practices and, smaller amounts that do not require collateral for deposit.
There are times in every business cycle where the company could benefit from having more cash available to it. A short term loan is a viable financial instrument that firms can use to solve these thin cash flow periods. However, short term loans can also be a dragging anchor on a business if they are unable to be repaid.
Here are three circumstances where you could benefit from a Short term loan for your business and one situation where you should avoid it at all costs.
1. Improve your credit score with a short term loan
Are you a start-up? Many new firms struggle to procure financing when they have just entered the financial world. Large institutions require financial collateral to access loan financing products. A new business will have no credit score and will therefore not qualify for a loan due to the bank rejecting their risk profile. Micro lenders will take on the risk from small businesses and lend them the money that they need to keep their business growing. These bad credit loans will help the start-up improve their credit score, enabling them to secure institutional funding in the future.
2. Avoid the seasonal slump
Do you run a business that is reliant on seasonal income? A short term loan can help you through the quiet period of the year until the tourists come to town. You should have an accurate estimate of what you can earn in a season and then use this data to plan the size and terms of the loan that you need.
3. Improve your cashflow
If you need money to help you though the middle of the month, a short term loan will give you the capital you need to keep your business going. Many retailers need an extra lift during mid-month when they have to pay suppliers and order new stock. A short term loan can act a s a bridge financing deal that keeps your business ticking over.
4. Never take a short term loan you cannot afford to repay
As a business owner, you need to know when the party is over. There comes a time when your business may be failing and taking on a short term loan to pay your expenses, and your staff is a bad idea. If you have no intention of paying the loan, then you may damage your credit score when you default. Sometimes it’s better just to let go of the business and start something new.
Short term loans are a valuable financial vehicle for any business in need of instant cash. Follow these guidelines and speak to your accountant or lawyer if you require some advice on whether a short term loan would be a good idea for your company or not.