Finance

All You Need To Know About Short-term Small Business Loans

If you are new in the market or even you, have been in it for quite some time with your small businesses you must be probably aware of the hurdles that an entrepreneur might have to face while setting up and operating the small businesses.

Small businesses can provide you with great benefits if you feed them well with hard work in the right direction and with proper management of a long term plan.

With the regular advancements in the modern world, new techniques have been developing to help you through your daily business-related problems. If you are interested in making your business thrive and step ahead in the race of success, you must have a piece of great knowledge about short-term small business loans.

What is a short-term small business loan?

The type of loan terms that set a repayment term and offer you a single time, a large sum of money that you borrow, and you have to pay this money based on these terms is known as short term business loan. The money you borrow will be paid back, including the interest on the total amount.

The repayment term is defined as the period which is specified between you and the loan lender within which you have to pay back all of the amounts that you have borrowed. Typically, short-term loans have a repayment period between a few months to a few years.

Comparing Short-Term Loans with Long-Term Loans  

Both short-term and long-term loans are term loans, but the difference lies with the amount of loan and the timeline of the period of the repayment.

Short-term loans contain the amounts that are smaller than the long-term loans, and the reason lies in their intended use, and that is, these short term loans are meant to handle the immediate needs.

Long-term come with an elongated repayment period as compared to short-term business loans. Hence, they offer a comparatively larger sum of money for much extensive and heavier business needs. These types of loans are designed for major investments that often take a much larger amount of time to get implemented.

Moreover, in these long-term business loans, the actual terms of payment vary from one lender to another, but a typical long-term loan repayment period can be between 1 year and 25 years.

This length of repayment period also affects the rates of interests. The length of the payment term also impacts interest rates. For example, long term business loans come with much lower interest rates as compared to short-term business loans. The reason is that the borrower has to pay back the amount in an extended period of time.

Whereas, short-term business loans come with a shorter repayment period, so the borrower has much less time to pay back the amount. This compressed payment term is reflected through its higher interests of short-term business loans.  

When do you need to take a small business loan?

If you are a small business owner, you might be in need of a short-term loan when you face an immediate need that may not be suited to be fulfilled by a large sum of capital. Few of such cases include: maintaining cash flow, stocking up on inventory, hiring seasonal help, covering emergency repairs, paying for marketing costs, and building up your business’s credit score.

Some of the most prominent reasons for which a business might need a loan are as follows:

Start-up costs for the project:  Most of the times, your small businesses or new projects require some upfront cost that your business may not be able to cover with its cash-flows, but will require almost 60-90 days so that their customers would pay their invoices. In such cases, all you have to do is think wisely and do not settle for long-term loans that you would be stuck into payback for several years. So, to get in and out of such financial turbulence immediately, you might prefer to go for a lower total dollar cost.

To bridge a seasonal gap of cash-flow: There are many seasonal businesses out here that have to borrow money so that they could meet their short-lived cash-flow demands during the downtime that occurs between their busy seasons. This requires that their businesses show that they have sufficient cash-flow during that period so that they can make the larger payments in a periodic way and that is often associated with a short-term loan.

To purchase a quick turn-around inventory at a special discount: A short-term loan can provide you with a great opportunity so that you can purchase an inventory at a special discount that you can return quickly so that your business can capture additional profits. 

Cost for the emergency repairmen of equipment: Oftentimes, the equipment that is necessary to operate your business, fails and you must have to repair it back to its original position so that it can once again contribute to the effective operation of your business. In such cases, a short-term business loan can make up the loss and helps you to keep moving the operations once again and restore the businesses’ previous status.

Why Short term small business loans are important?

Businesses need funds so that they can maintain their cash-flow and make sure that they could run their businesses smoothly. To do that they need a considerable amount of capital that can positively boost their businesses.

It does not matter what business you are running. Maybe you are running a restaurant and need some equipment for its effective operation, and you don’t have such a large amount of money to spend on that.

Or, you may need money to hire new staff for your small business. In addition you may also need money to expand you already established small business to larger premises. Whatever the reason may be, you will need the loan for your business.

When you plan to go for a loan, do not hesitate, as these small business loans can be quite effective and beneficial for you. They help you to need your working capital requirements and to flourish and expand your business beyond measures.

It helps you to maintain your cash flow and stabilizes and strengthens your financial position in the difficult times and during the changing economic conditions. 

These small business loans are quite effective in playing a prominent role in helping you establish small businesses that you have planned to make your future secure and bright. They not only lend you money but keep you at ease with the timeline in which you have to return the loan.

What are the best and easiest small business loans to get?

There are many lenders out there in the market that provide you with short-term business loans. Some of them are as follows:

Fundbox: It is a specialized business loan lender that offers you some financial products for your small businesses. It was initially founded in 2013, with the initial provision of invoice financing products, known as Fundbox Credits. Later in 2017, it introduced a credit product line, and now it stands out prominent because of super-fast and easy to qualify for its useful products.

BlueVine: It is an online lender that offers you, being a small business owner, various loan options that you can go for in order to fulfill your short-term business financial needs. It is currently not working as it ended recently on 8th August 2020, but it offered Paycheck Protection Program loans that assisted all the small businesspersons during the pandemic of Covid-19.

Kabbage: It is a technology company that serves to connect the small businesses with various cash-flow solutions which include access to capital and the payment processes. It provides effective tools that simplify all the day-to-day cash-flow needs experienced by every small business owner. It allows you to accept payments efficiently, access the flexible LOCs, and understand their cash-flow. 

OnDeck: Originally founded in the year 2006, OnDeck is one of the most leading platforms that is working to provide you with fully automated loan services that are quite beneficial for your small businesses. It mainly offers you term loans and business LOC. It allows you to go for the online application process and prevents you from being involved in any physical interview in person.

LoanBuilder: It is a loan lending service that offers you an easy, quick and a transparent way for running a business. It is offered by PayPal and offers you a short-term business loan. These loans are an interest-free type of loans in which you have to pay back the borrowed amount in a predetermined and a fixed fee, including the amount that they had borrowed previously.

Types of short-term business loans

There are multiple types of short-term business loans that you can go for, but some of the below mentioned are the best amongst all.

Merchant cash advances

It is a type of loan in which a loan lender provides the amount needed by the borrower. After which the borrower allows the lender to access the credit facility of the borrower and makes the loan payments. Every time, a customer of the borrower makes purchases a certain amount of sale goes to the lender until the lender repays the loan.

Lines of credit

LOC resembles a lot to using business credit cards. A credit limit is set before-hand, and the business is able to intrude into the LOC whenever needed. It comes with allowing you to pay the business instalments that you can pay against the amount that you have already borrowed before.

Therefore, the dues for the monthly payment vary depending upon the LOC amount that has been accessed by the borrower. The advantage that you can put your eyes on is that the lender generally charges a lower APR; Annual Percent Rate.

Payday Loans

When you are in a certain emergency, then it is quite obvious that you would need the short term loans that are quite easy to obtain. High street lenders often offer these.

The only drawback Is that the borrower has to pay back the whole amount, including the interest rate in a large one lump sum when the payday of the borrower arrives.

These repayments are generally made by the lenders who take out the amount from the borrower’s bank account. He does it by using continuous payment authority.

These payday loans come with relatively high-interest rates, so they are quite a burden for the borrower.

Online or Installment loans

When everything is done online, it is relatively easy for you to handle the loan borrowing processes. Online or Installment loans make it easy for you do to everything online: from application to approval.

The positive feature of these types of loans is that they are easy to process, are time-saving and can be done within minutes.

 Invoice financing

This type of financing is efficient in B2B businesses whose financial needs are very specific. What they do is, they send the invoices to their clients and wait for the payment, where meanwhile their own bills and required payments are mounting up that need to be clarified. The shortage of funds occurs when these businesses can’t get their cycle of cash flow to sync up efficiently, and their payment remains due.

The only drawback of this invoice financing is that the fee is a bit higher than other kind traditional loans and the amount that you pay greatly depends on how long your client will take to send the payment but the benefits are great.

Some Final Words

We have covered almost all the points that you need to keep in mind before going for a short-term small business loan. These business loans can prove quite effective in making your small business thrive.

Without any hassle, these loans can make you go through all the financial troubles that you are facing in your small businesses. So, if you find any trouble while making your businesses succeed, do turn towards these short-term business loans for personal help.

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