Businesses obtain short-term finance for several reasons. They may be looking to expand the business, hire new employees, purchase equipment or any other immediate action that requires cash in the short term.
Getting a traditional loan from a bank or other lender can be a lengthy process and businesses aren’t always guaranteed to be accepted. Particularly, when they are start-ups or small or medium sized businesses.
Despite this, there are still options for companies to obtain finance. Nowadays, businesses have access to a wide range of flexible lending options, so they don’t always need to go through the traditional route. Instead of waiting months for a loan, companies can get access to short term finance within 24 hours.
When short term finance is better than long term finance
Typically, long term lending options are not always easy to obtain for smaller businesses. Not only do they take a while, but often there are some restrictive requirements on businesses. This can cause difficulties and delays or even prevent a business from getting access to finance.
Short term loans are an easier option and can offer more flexibility as well as giving faster access to money so that you can keep your business running smoothly.
Both long- and short-term finance could work for your business, but it depends on your requirements. A short-term loan is often more suitable for smaller businesses or start-ups, especially when they are looking to expand. It can help to overcome any financial hurdles or help to pay off any other debts with high interest.
What to consider when looking for short term finance
Whilst short term lending can be an easier option, it is still worthwhile for business to make sure they are getting the right deal. For starters, shorter term lending often comes with higher interest and APR rates, so it’s worth finding one that’s right for you.
Secondly, understanding your own financial habits before obtaining any loan amount as well as the purpose for the loan can help you to understand how to maximise your ROI and ensure the loan is helping your business grow whilst not causing financial difficulty.
The main thing is to ensure that the finance you are receiving is helping, rather than hindering your ROI. Here are some tips we’ve suggested to help make sure that you can maximise ROI with short term finance.
Compare your options
Whilst short term lending is easy to obtain, it’s important that businesses are astute and put in their research to find the best option for them. Interest and APR rates can be high so it’s definitely worth putting some time in to find the best deal.
Match the term with the purpose
When obtaining a short-term loan, some companies will be provided with the maximum finance available to them. Whilst it can be tempting to take the maximum amount, in order to maximise the ROI, it’s best to keep your borrowing to the amount you need for your purpose. This means that you’re not repaying the loan over a longer period and generating high interest when you don’t need to.
Work out your repayment schedule
It’s important to be aware of your cash flow so that you know when you will be able to repay your short-term finance. If you are given the option, it may be worth looking at paying in increasing increments to keep the interest low. Your investment will hopefully be generating revenue, giving you the option to pay it back quicker.
Define your ROI target
Before even looking at short term financing options, it’s important to define what you want to get out of it. It may be that you need to remove some higher interest debt, hire a new employee to generate more profit or expand your business, all of which would bring in more revenue.
Understanding what that revenue is and how long it will take to reach it will help you to make a better decision on your short-term loan. When your ROI is defined, you can ensure that your loan is right for your business and getting more out of your investment.
Whilst short term lending is not always ideal for smaller businesses, it can bring about a lot more flexibility and give faster access to money which you can invest back into the company. Businesses can seize a growth opportunity and help themselves get into a better situation financially if they continue to meet the repayments.
Ultimately, short term lending can be a great way to maximise ROI when done correctly and help a small business expand quickly.
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