By Lauren Bracy
If you’re a small business owner or entrepreneur who’s just starting out, you know how difficult it can be to manage your finances and pay for all the initial expenses that come with the territory. Whether you’re dealing with a short-term financial shortage or need to expand your product line due to sudden demand, you might find yourself needing a convenient and fuss-free short-term loan.
Taking out a loan requires thought and planning, and you also need to be clear on your reasons for needing a loan. Short-term loans can help you get out of a temporary financial slump, and can be easier to attain than a credit card if you have poor credit history or do not have enough of the necessary paperwork.
If you’re unsure of whether your situation necessitates a short-term loan, here are some of the scenarios where it is likely to be appropriate.
Cash Flow Shortages: One of the most common reasons businesses reach out for a short-term loan is because of temporary cash flow shortages, often due to a cyclical or unpredictable sales structure. A short-term loan can help you pay the necessary bills or other expenses that you might owe, avoiding problems later down the track.
Seasonal Trends: On a similar note, seasonal trends may also affect a business and result in a sudden need for extra cash. For example, you may find that you need more staff during the summer holidays or that you get more orders during a time of year.
Emergencies: Emergencies are one of the most common reasons for people to seek out personal or short-term loans, and this applies to businesses as well. Something may happen that your insurance is unable to cover, or you may need to suddenly replace equipment. In cases like this, you don’t have time for lengthy application processes and need a fast and reliable low-doc short-term loan to get you through the rough patch.
Expansion: If you find your business growing faster than you expected, you may need to suddenly finance an expansion but do not have time to wait for your own revenue to grow. Expansions such as opening another branch or broadening your product line means quick, upfront capital, which short-term loans can assist with.
If one of the above situations matches what your business is experiencing right now, a short-term loan may be in order. But why would you choose a short-term loan over say, simply using your credit cards?
Advantages of a Short-Term Loan: Some of the advantages short-term loans have over other forms of financing are:
· Short-term debt: short-term loans tend to mature within a year, meaning you can have peace of mind that you won’t be making payments forever. The short time frame also encourages businesses to be responsible with their spending, instead of thinking of it as “free money” like sometimes happens with credit cards.
· Improved credit score: You might have trouble seeking other forms of financing because of your business’s poor credit. If this is the case, low-doc short-term loans allow you to boost your credit score by paying off the loan within a few months. This sets you up for taking out more loans at a better interest rate.
Things to Bear in Mind with Short-Term Loans: Of course, short-term loans also present some potential drawbacks that are important to keep in mind. These include:
· High interest rates: short-term loans usually have higher interest rates than long-term loans, which is understandable given the nature of the loan.
· Debt cycle: short-term loans may tempt some into falling into a debt cycle. As they are easily accessible, businesses may be tempted to take out a loan whenever they find themselves strapped for cash. Of course, this is not a sustainable strategy and is likely to land you in further debt. Instead, short-term loans should only be used in one of the above scenarios, when you know your business needs the boost, and that you’ll be able to pay it back.
· Only borrow what you need: similarly, don’t use loans to finance absolutely everything you’ve ever wanted for your business. A short-term loan is only for pulling your business out of a slump, not for buying new gadgets or renovating your building.
Author Bio: I am Lauren Bracy, a qualified blogger. Here you can see my skills which gives you small ideas on understanding all the concepts with different themes. I love to write blog on different topics, like: health, home décor, Automotive, Business, Food, Lifestyle, Finance, Flowers etc.