It goes without saying that a business is doomed to go under without proper funding. Small companies are more prone to dying out, at least in the beginning, if funding isn’t injected into them. If your small business is however growing, you may also need funding to help expand your operations.
In both cases, a short term business loan may be your saving grace.
What are short term business loans?
A short term business loan is a fast and flexible loan type, that can help improve your business cash flow. Short term business loans are typically quick to access and require minimal documentation. They are generally used for the following reasons;
Cover a business initial start-up costs
- Pay staff
- Purchase inventory or equipment
- Pay for emergency situations
- Purchase stock
- Pay BAS or Tax Payments
- Working Capital
- Marketing or Advertising.
The benefits of short term business loans
Short term loans provide immediate aid to business owners that need it. The process is quite short, and the requirements are easy to fulfill. To give you a hint of how quick the funding is, the approval period of a short term loan can be 24 hours.
That, of course, does not apply to a large loan. Bear in mind that you can use this money to seize some opportunities; they’re not only for worst-case scenarios (going bankrupt or risking closure, for instance).
They are given to people with bad credit score
Not only are these loans given in a matter of hours (depending on the policy of the lender, really), but they are handed out to people who would be rejected by banks on account of their low credit score.
In this light, short term loans are life-savers. Given that they are short-term, creditors know that you will be able to pay the loan back, even if your credit score is a little low.
Short term business loans can be given for a variety of purposes
You can use the money from a short term loan for any business-related expense. This may include; an investment into a product or service that will better the business such as a marketing campaign. No matter what you need, you’re set with a short term loan.
Drawbacks of Short Term Business Loans
Smaller sums of money
Short term business loans may not allow you to borrow large sums of money. For example, If you need to borrow $50,000 you may not be eligible for a short term business loan. Bigger sums of money are not given out as a short term loan because of the nature of the loan, which has to be repaid in less than one year.
Many lenders know that, once you’re looking for short term loans, you’re probably in dire straits. Unfortunately, this generally translates to higher interest rates. It is therefore important to do your research and make sure that you find the right lender. This way, you can at least make sure you’ll be going with the one that will take the least from you.
Other strings attached
Apart from the high-interest rates, you may be required to pay some other additional fees imposed by the lender (depending on each lender).
Risk of losing the collateral
Short term loans are usually secured by collateral, even though they’re basically to be repaid within a few months. Should you default, you could lose your car or whatever it is you secured the loan on.
People seem to think that secured loans are so much better than their unsecured peers. If you are 100% certain that you can repay the loan, consider a secured loan. If possible, always get short terms loans without any collateral. There’s no way you will default on a loan like this. It’s almost impossible, given that the sum of money you’ve borrowed is quite small.
Loans with short term make sense for small business, but they also have some unpleasant downsides. If you have a financial advisor in your company, it would be a good idea for you to consult with him/her before making a decision. If you don’t have an advisor, you can speak to one of our expert loan consultants at Australian Lending Centre.