Cash flow is among the main determinants of your business success. However, you may get caught up in unplanned emergencies that use up most of your working capital that was to run for a specific time. When search events transpire, you may want to find new sources of finance to keep your business afloat.
You can seek long-term or short-term financing options depending on your needs. However, short-term financing is the best option for small businesses. It has relatively low-interest rates, with less paperwork and quick access to funds. That said, here’s a comprehensive guide to short-term financing:
Types Of Short-Term Financing
Many financing options are available; however, select one with favorable conditions that you can repay within the given timeframe. The best thing about these short-term or bridging loans is that you can choose between open or closed bridging loans.
As the name suggests, the difference of open and closed bridging loans is that an open one doesn’t have a fixed repayment date, while a closed one does. That said, here are the different forms of financing you may want to consider:
- SBA Loans
Small Business Administration loans are a form of short-term business financing you can request from banks or an online lender. The government partially guarantees these loans, meaning they have low-interest rates.
The best part is that they have flexible terms, which makes them one of the best financing options for your small business. Ensure you read the terms and conditions when applying for SBA loans to make the most of them.
- Business Credit Cards Loans
Business credit cards are also an excellent option for financing your daily short-term operations. They operate like personal credit cards, only that you use them to cover business expenses.
When applying for business credit card loans, go for those offering cash back. This way, you can reinvest the money into the business.
- Business Line Of Credit
Other than venture capital, you can also use business loans as a source of working capital. A business line of credit is also another excellent short-term financing option for your business. It allows you to borrow a specific amount of money with relatively low-interest rates, which vary depending on the lender. You’d, therefore, want to do your research thoroughly before settling for any provider.
- Invoice Discounting
Unlike invoice financing, where you sell your unpaid invoices to the lender in exchange for a business loan, you use them as collateral to obtain the loan from the loaner. The lender then gives advances on your loan depending on the value of the invoice. You still collect the payments from your clients and use them to repair your loan and interest.
- Equipment Financing
You can also finance your business through equipment financing. Depending on your financial capabilities and business needs, it allows short- or long-term borrowing. Equipment financing is a form of a business loan or lease that will enable you to purchase business machinery and equipment, such as a vehicle, computer, or office furniture, on credit.
Factors To Consider When Applying For Short-Term Financing
As mentioned, there are many lending institutions you can borrow from. However, you may want to consider the following before applying for a business loan:
- Repayment Terms
One of the most vital things to consider when applying for a short-term business loan is the lender’s repayment terms. Check the monthly amount they require you to pay to know whether you can deliver within the specified time.
Explore different options, evaluate their terms, and settle for the best offer. You can even negotiate with your lender to increase your repayment period if they have reasonable rates.
- Interest Rates And Hidden Charges:
Another factor to investigate when applying for a short-term is the interest rates the lender applies and other hidden charges like underwriting, appraisal, and processing fees. Different lenders and banks have varying interest rates, and you’d want to land one with a favorable one. Therefore, you can request referrals from other entrepreneurs or do your research.
- Type Of Loan
The type of loan you want for your business will also affect your lending decision. First, decide on the loan type and search for lenders who offer it. For instance, not all online lenders offer short-term equipment loans to small businesses.
- The Amount Required
The total amount you need for your business matters when applying for a loan. The greater the amount, the higher the interest rates you’ll likely pay. If you need a considerable amount, a short-term financing option may not be appropriate, as you must pay it back in less than a year.
Generally, these are just some factors to consider when applying for a short-term loan. You should also consider things like liquid assets, collateral, employment history, and creditworthiness, as these are the things your lender will evaluate before they give you the loan.
Short-term financing options are viable for your small business. For one, they have a faster approval rate and can help you handle business emergencies and cover operational costs. While at it, ensure you understand the terms and conditions of each before applying for one.