As a business owner, you’ll often find yourself in need of financing and may be asking about short term loans for your business. Depending on your needs and circumstances, you could choose from short, intermediate or long term business loans.
In today’s post, we will discuss short term business loans, the instances in which they should be used, and the terms you have to meet to qualify for them. So, let’s get started!
Defining short term loans for your business
Loans that are classified as short term loans typically have a maturity of one year or less. In other words, they have to be repaid to the lender within that fixed timeframe. Nevertheless, there are short term loans that can be repaid much quicker than that – in approximately 120 days.
The primary reason why many business owners choose loans with short maturities is that they facilitate immediate financial help. What is more, they don’t require making a long-term financial commitment, which can be rather stressful, especially for start-ups.
The Purposes of Short Term Loans for your business
What are those instances in which short term loans are actually helpful? It’s always recommended to assess your circumstances, whenever it comes to making a financial decision. That being said, short term loans can be convenient for seasonal businesses, in particular. For example, retail firms that have to cope with inventory for the holiday season.
Such a company might require a short term loan in order to purchase inventory in advance for the holidays. A business in this situation might be unable to make repayments until the end of the holidays. In such a scenario, a short term loan is an excellent option for businesses.
Nevertheless, this isn’t the only scenario in which a short term loan is a good choice. If a firm intends to increase its working capital in order to cover potential temporary deficiencies, a short term loan will meet this purpose.
On a different note, if you are waiting for credit customers to cover their bills, you might need financial support in order to pay your own bills. Additionally, such a loan could aid you to even your cash flow, especially if you own a cyclical firm.
What You Should Know About Qualifying For Short Term Business Loans
Moving on to qualifying for a short term business loan. For starters, you’ll have to collect comprehensive documentation for your application. Most of the times, the lender will require a record of your payment history that encompasses the loans you had in the past, payment records to current accounts, and, of course, your firm’s cash flow history for the last three to five years. Of course, these requirements vary. Additionally, you should be prepared to supply your income statement for the amount of time your lender requires it. Take into account that the documentation you gather should be in a professional format.
On a final note, your qualifications for short term business loans will establish whether or not the loan will be secured or unsecured.
Short Term Loans vs. Long-Term Loans: Which Is Better?
Typically, short term loans have higher interest rates, in comparison with long term ones. Nevertheless, in a recessionary economy, the interest rates on short term loans could be more advantageous.
In general, short term loan rates are determined by the prime interest rate and some premium. The lender will establish the premium depending on the risk your company poses to them. That is concluded after carefully analysing the documentation submitted for the application process.
Moreover, the interest rate on short term loans can be calculated in a number of ways. It’s best to be informed about the current prime interest rate so that you are knowledgeable when you negotiate the interest rate on your loan.
Securing a short term loan as a small business or start-up is a possibility. That is primarily because short term loans feature fewer risks than long-term forms of financing, due to their maturity. Nevertheless, it’s worth noting that, in the case of start-ups, most will qualify only for secured loans, which would involve offering collateral to secure the loan with the lender.
On a final note, the availability of short term loans to start-ups and small businesses is crucial to the economy. Without short term financing, companies couldn’t operate properly, nor could they expand.
If you’re looking for reliable funding for your business, you should get in touch. Australian Lending Centre supply suitable deals for our customers. Our focus is to assist Australian businesses, helping them find the ideal loan options for their needs and circumstances.
Conclusion Regard short term loans for your business
To conclude, short term loans for your business can be beneficial to both start-ups and businesses that have been operating for years. And the good part about them is that almost every business can get one. If you have other questions on the topic, you can leave them in the comment section below!