Financing lies at the heart of every successful business. When you adequately fund your business, it grows faster and becomes more sustainable. There is no doubt that learning about and managing the sea of business financing options is critical to your growth as a business owner. With this in mind, many small business owners turn to short-term lenders for their business financing as these options don’t require extensive documentation and have a shorter approval process.
However, knowing all the available short-term financing sources for your business is key to making a good decision when looking for funding. In general, you will find that if your business is under $5 million in yearly revenue that your short-term business financing options are limited.
The following are some more business financing options that you should consider and know about.
Short-Term VS. Long-Term Business Financing
The major difference between short-term and long-term business financing is the duration to pay back.
Long-term financing is paid over a number of years, say, between two to five years, and a company asset typically backs it as collateral. Borrowers of long-term loans make fixed monthly payments to pay back the business loan.
On the other hand, short-term financing options are paid back over a short period. They typically run less than a year and come with a higher interest rate, but in some cases, they can refer to loans up to 18 months.
Moreover, short-term financing suits small businesses often better because many lenders like Financing Solutions do not even ask for collateral or a personal guarantee.
However, there are critical factors you’ll want to consider before finally deciding on which financing option you will go for-for example, the amount of money you want to borrow, how urgently you need the funds, the type of collateral you’ll provide (if any), and your overall business financial health.
Options For Short-Term Business Financing
There are plenty of options for your short-term business financing, and a good understanding of the available financing resources out there will help guide you through making a decision that will favorably affect your business. Below are the options for short-term business financing:
Business Line of Credit
A veritable source of short-term business financing is a business line of credit. Owners of small businesses use a business line of credit to meet working capital needs, including covering bills, payroll, or catering to unexpected needs. In addition, it can be used to take advantage of strategic investment opportunities or function as an emergency fund ready to borrow from when needed.
Like a credit card, a business line of credit offers you a preset amount of money that you can tap into from any time you need it up to the set credit limit. You will only pay interest on the amount you borrowed, not on the entire sum. Then, once you repay the loan, it becomes available for you to borrow again.
There are also other types of business lines of credit where you pay a fixed fee based on the amount borrowed.
A business line of credit can be a great short-term financing option for small business owners. It provides many advantages including a straightforward application and quick approval process, plus it can help improve your company’s credit score if you make repayment on time.
If you’re in need of an unsecured business line of credit, don’t hesitate to reach out to Financing Solutions for an easy-to-setup and inexpensive credit line.
Invoice financing is another great way to fund your business during financial difficulty. Instead of waiting for your invoice payments to become due, this method allows you to borrow money on outstanding customer invoices. In other words, it’s a means of borrowing money based on what your customers own your business.
Invoice finance helps you immediately get most of the needed cash to run your business so that you don’t have to wait until you get paid. Also, it helps you to manage cash flow issues and cater to short-term expenses effortlessly.
The disadvantage of invoice financing, also known as factoring, is that your clients will be required to sign a contract with the factor so that payments go directly to the factoring company. The factor also will be running credit checks on your clients and if your clients’ credit is subpar then the factor can refuse to advance funds. Lastly, your business may be required by the factor to have all clients factored and in many cases, your will be paying much higher fees than needed.
Small Business Loan
The Small Business Administration can help small business owners get funding by setting guidelines for loans and minimizing risk for the banks. The most common SBA-backed loan for short-term financing is the 7(a) Loan Program. In addition, it can also be used for short working capital, refinancing current business debt, and buying furniture, fixtures, and supplies.
The maximum amount you can get from a 7(a) loan is $5 million. The key criteria for accessing the loan are based on what your business does to receive income, its credit history, and where the business operates. You will still be working directly with a commercial bank but the SBA will be sharing the risk with the bank if you default. This means that the bank might be willing to take a bigger risk on approving your business for a business loan
Some other requirements for the loan are:
- You must be a for-profit business (versus a nonprofit business)
- Your business must be considered a small business as defined by SBA
- You must be engaged in or propose to run your business in the United States
- Have reasonable equity investment
- Have current cash flow
- Use alternative financial resources for collateral such as personal assets
- Strongly demonstrate the need for a loan
- Use the funds for a viable business purpose
You need the necessary equipment to facilitate production for your business to operate effectively. Equipment financing gives your business the money to purchase or lease the equipment it needs to operate at its peak performance.
The equipment can range from IT equipment, office furniture, company vehicles, and more. Lenders provide your business with the cash secured by the equipment you’re using to purchase or hire the equipment, and you make a repayment by monthly installment.
Equipment financing as a short-term funding option helps you improve cash flow and meet your business expenses. Equipment financing is most often set up by the company your are buying the equipment from.
If You’re Looking For Short-Term Business Financing- We Can Help!
Short-term financing is an excellent option for small businesses because it’s the most accessible avenue for funding. With this in mind, Financing Solutions- a reputable company with A+ & 5-STAR ratings- provides easy, fast, and inexpensive unsecured business lines of credit for small businesses. Our small financing product is a great alternative to a traditional bank loan because it requires no collateral and a personal guarantee. Plus, it doesn’t demand credit requirements which makes it almost impossible to get approved.
We ask for very little paperwork, and it’s possible to get your money the same day. Many other alternative lenders have a much longer application process and can be relatively expensive. Find out today why we have five-star ratings from the Better Business Bureau and Google.
If you want to see if your business would be approved and for how much, please fill out the no-obligation, 2-minute line of credit application here.