Short Term Business Loan: Why This is the Best Type of Financing
A short term business loan is perhaps the best type of financing for many small business owners. By not committing to a long term relationship, it is easier to manage your cash and keep your business flexible and relevant.
In business, there are typically two kinds of races, sprints and marathons. You can think of sprints as your immediate, daily needs and expenses and the marathons would represent your long term goals. For fast, emergency funding, a short term business loan is the best type of financing.
Explanation of the Short Term Business Loan
A short term business loan is defined as any funds borrowed with the condition that the money gets repaid in less than one year. Although the terms may specify repayment in a year, many small businesses that choose this option tend to need only a few months to pay back the money.
In many cases, businesses seeking a short term loan are looking for fast cash without a long term obligation. Obtaining a short term business loan can help get you through a rough patch without your employees, clients or creditors knowing that you are having a brief cash flow issue.
Types of Short Term Financing
When choosing the method of short term financing that is right for your small business, it is crucial to remember that whatever your selection, you must be able to pay it back. If you take out a loan but can’t keep up with the payments, it just creates further stress for you and your business.
A line of credit from a bank could be considered as a type of short term business loan. However, most small businesses do not have the collateral or the time that it takes to qualify for any kind of loan from a traditional bank. Some banks may help, but you might have to put up your home as collateral, essentially giving you a home equity loan.
Even when the terms specify that the line of credit is to be repaid within a year, there is still a lengthy application and approval process before you can get any money. In addition, the interest rates can sometimes be very confusing.
Factoring companies can offer you a short term business loan as well. They will provide the funds slightly faster than a bank but you should know that these companies typically have expensive fees. Also, most have problematic policies that require your customers to send their payments to the factor, instead of writing the checks to you. This is the equivalent of a flashing, neon sign saying your business is in financial trouble.
The Best Place to Turn for a Short Term Business Loan
Ben Franklin has been quoted as saying that you should never be a borrower or a lender. Nevertheless, there are many times when a small business might need cash right away and often, the only way to obtain the required funds is to borrow money.
It can happen when you have an account receivable gap, waiting 30, 60 or 90 days for your clients to pay on an invoice but you still need to make payroll or pay business taxes. Businesses that experience seasonal fluctuations and those that sometimes need to hire temporary staff may also find themselves at risk of a temporary cash shortage. In addition, companies might use short term business loans to help build working capital.
A cash advance company, like Financing Solutions (www.fundmypayroll.com), is the best choice for quick financing. This type of alternative lender will purchase your account receivables and provide you with cash upfront so you can handle your day to day operations or further grow your business.
The application is brief and you can get an answer in a day or two. Most important, the funds can be in your account in 48 hours or less. The difference between having a successful business today and going out of business tomorrow may very well be a short term business loan.