Short-term business loans have their advantages and disadvantages, as with anything in life. However, they may not appear the obvious solution when one is considering borrowing to power growth. Yet in the right circumstances, this can be the perfect way to give your business the stability it needs to get ahead in the longer term. So when should you consider taking out a short-term business loan?
Five circumstances where a short-term business loan can be the answer to long term growth
1 Financing a start-up. Lots of entrepreneurs launch their business with short-term business loans. Sometimes it takes less than you’d expect to get a business up and running.
2 Dealing with a sudden emergency. Whether it’s a laptop that unexpectedly fails or a hole in the roof, you can easily find yourself with an unanticipated bill – and without the means to pay it.
3 Short-term operational costs. A one-off large order could mean you need to hire temporary staff or a piece of specialist equipment – something you won’t have budgeted for.
4 Late payers. Some customers pay faster than others, and even the best payer can mislay an invoice or experience IT problems. Meanwhile, your suppliers still need to be paid.
5 Cash flow blips. Sometimes you need to spend now but won’t be paid until later. A short-term business loan is the perfect solution to smooth out this type of bump in the road.
Alternatives to a short-term business loan
Of course, a short-term business loan is never the only solution. However, tempting as it may seem, diverting cash from other areas such as your payroll can prove disastrous if it means you can’t meet your commitments. That said, you can certainly consider another kind of borrowing.
In particular, don’t be tempted to take our short-term business loans to cover long-term debts. If, for example, you are purchasing a major asset such as a car, property or major piece of machinery, you will gain benefit from the asset over quite a number of years and should consider borrowing over a similar period. Use short-term credit, which can be more expensive, and your business could face a cash flow crisis from which it cannot recover.
You should also avoid the temptation of taking short-term business oans to fund risky or speculative behaviour. If there’s any realistic chance that your hunch won’t pay off or you won’t be able to repay the loan, think again. Risk-taking is often crucial to business success, but like any gambler you should only stake what you can reasonably afford to lose. With a short-term loan, it’s crucial that you will be in a position to pay it back, on time and in full. Anything else puts your entire business at risk.
How to secure a short-term business loan
Banks often provide short-term business loans as lines of credit, with the option to pay only the interest before making full repayment at the end of the term. Both the term and the interest rate can be negotiated, though typically such an arrangement would last for between about 90 days and a year or two.
Another option is releasing the equity in your home, which again can be arranged on an interest-only basis. This is a cheap way of obtaining the finance you need, since the loan is secured on property, but it’s also risky: fail to repay the capital and you will be homeless and potentially out of business.
Alternative lenders such as Cashsolv can also play an important part in your financial planning.
Short-term finance solutions from Cashsolv
If you need money fast, we can have it inside your account within 24 hours via an emergency loan. You can borrow anything between £20,000 and £250,000, and use the money for whatever purpose you wish.
Alternatively, for longer-term lending you can opt for asset-based finance, where you borrow against the value of your equipment, plant or premises. For this type of lending, we use a panel of lenders, meaning we can negotiate very effective interest rates on your behalf.
You could also find that invoice finance can free up your cash flow on both a short-term and ongoing basis. Available only to business-to-business companies, these useful services enable you to borrow up to 85% of the value of your invoices as soon as you issue them. Opt for invoice discounting and you retain control of your own debtor ledger and negotiate with clients to secure payment, whilst with factoring our highly experienced credit control professionals will do the job for you.
The best option will depend from company to company: some business are uncomfortable with the idea of their customers dealing with a third party over outstanding invoices, whilst others recognise that a dedicated external credit control team can secure earlier payment and thus reduce interest charges.
Get in touch today
Cashsolv is here to help with all your short-term finance needs. To discover more about how we can assist, please visit our business finance page.
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