Use a short term business loan to handle immediate business needs
Businesses of all types and stages can and do use different types of financing to improve and stabilize their business. Short-term business loan is just one the many types of business financing and each type can be applied to different business situations, but each has a specific purpose to be used for providing the best return on investment.
There are multiple term loans and the short term business loan is very effective for startups, operating businesses and businesses that are growing. Like other types of business financing applying the short term business loan to the situations that it is intended for will provide the best return..
Small business debt financing can solve problems
Debt financing is money that a business owner borrows to operate a business. Debt financing ranges from short-term loans from hometown banks to the smallest of businesses to long-term bond issues in millions of dollars for large businesses.
There are many solutions that debt financing can provide for small businesses. These solutions include cash flow, inventory, acquisition, gap financing, personnel, payroll, equipment purchases, and real estate.
Short-term business loan debt financing:
A short term business loan is similar to long term financing except for the term. A short term business loan can be offered in 30,60,90,180 days but by definition a short term business loan will not exceed 365 days or one year.
In normal times the interest rate charged is lower than long term financing. In today’s environment this has been turned upside down, and short term rates are now higher than longer terms. This does reduce the attractiveness of the short term loan.
Most short-term loans are used by small businesses as opposed to long-term business loans. Term loans with short maturities can help a business owner meet an immediate need.
The FDIC has recently updated it’s policy emphasizing the importance of short term and small dollar loans.
When should I use short-term financing?
When should I use short-term financing?
Short-term loans are often used to:
- buy inventory for businesses whose sales are seasonal in nature.
- raise working capital to cover temporary deficiencies in funds so you can meet payrolls and other expenses.
- You may be waiting for credit customers to pay their bills. pay your own bills for example, to meet your own accounts payable (what you owe your supplier) obligations. even out your cash flow, particularly if your company is a cyclical business.
How to Qualify for Short-Term Financing
In order to qualify for a short-term loan you will have to present comprehensive documentation to your lender.
The lender will want:
- a record of your payment history for other loans you may have had, including payment histories to your suppliers
- (accounts payable) and your company’s cash flow history for perhaps the last three to five years.
- You should also be prepared to hand over your income statement for the same amount of time if the lender requests it.
- All documentation should be in a professional format.
- Your credit score and credit history through at least one of the three major credit bureaus. Your credit score may have to meet some minimum level.
Your qualifications will help determine whether or not the loan will be secured by collateral or whether it will be an unsecured, or signature, loan, or line of credit.
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