If you are planning to borrow additional funds for your business, a short-term business loan can help bridge the gap in times of temporary cash flow insufficiency. It will enable you to deal with immediate business needs, whether it be operating expenses, marketing, business expansion, or anything in between. A short-term business loan can give you quick access to funds — and can be paid off in 1 year or less, as opposed to long term financing.
Short-term loans are useful to businesses that are seasonal in nature, for example, retail. When a retail business has to build up inventory for the holiday season, it might need to buy inventory ahead of the holidays and may not be able to repay until after. This scenario perfectly describes the use of a short-term business loan. This type of loan won’t demand a long term commitment from the borrower.
A short-term business loan can also be allocated as working capital. Working capital indicates the amount of funds that is needed to run the day-to-day operations (purchase raw materials, work in progress, payment of expenses and wages, etc.). You can use the loan to cover temporary fund deficiencies while waiting for credit customers to settle their bills. Read up more about short-term business loans here.
You may also need a short-term business loan to pay your own bills (accounts payable) or just even out your cash flow.
The following are some popular short-term business loans:
- Business Credit Cards – A business credit card can be a helpful method to quickly access financing for short-term needs and can increase your company’s purchasing power. To help track expenses for your small business, get a business credit card. They are frequently marketed as an attractive alternative to a traditional line of credit.
- Business Overdraft – A business overdraft is a short-term facility usually provided by a bank. It offers a ‘buffer’ on your business bank account when you are faced with emergency business costs or managing a cash-flow gap.
- Invoice Finance – Invoice financing allows a business to meet its short-term liquidity needs based on the invoices (still unpaid by its customers) generated. Unpaid invoices are accounts receivable, which means that the company will receive that amount later.
- Line of Credit – Line of credit is a type of short-term credit which is usually available without reapplying as long as you make the minimum monthly payments. Line of credit or revolving line of credit provides you with access to a specific amount of funds. You can use it all or part of the funds, pay it back, and reuse it. You will only pay interest on the amount drawn.
- Unsecured Business Loans – These small business financing options do not require you to put forth any collateral for the loan. It is reimbursed in regular payments over an agreed period of time.
Short-Term Business Loan Benefits
Here’s a review of some circumstances where a short-term business loan can benefit you:
- Accounts receivables vs. payables – Cyclical businesses can bridge the gap in their cash flow with the help of short-term loans.
- Cash flow – Operate your business as usual while waiting for soon-to-come cash.
- Emergency repairs – Cover your costs during emergency, such as broken down equipment or computer crash.
- Short-term operational costs – During the holiday season, you might need to hire additional help or buy an equipment to accommodate the challenging job.
Short-Term Business Loan Qualifications
You should be prepared to present comprehensive documentation to your lender in order to qualify for a short-term business loan. This documents will show your company’s latest 3-5 years cash flow history, payment histories to your suppliers (accounts payable), your payment history for other loans (if applicable). Upon the lender’s request, you may also be asked to present your income statement.
There are lenders, like Cigno Business Solutions, which require a business to be operating for at least 6 months; generating a monthly revenue of $5,000; and possesses an Australian Business Number (ABN) or Australian Company Number (ACN).
Based on your qualifications, the short-term business loan can either be secured or unsecured by collateral.
Whether you’ve just started building up your business or operating it for decades, lenders know that speed and practicality are key factors in your success. That’s why they engineered short-term solutions to cater to your needs and help you get back on track.