Every business has to face several ups and downs every now and then. This kind of instability or state of unrest in any company is quiet natural and understandable. Although the money flow gap is a usual occurrence, it is not permanent. These gaps can be filled and the cash flow balanced out easily through a ‘Short-term Business Loan’. This loan is particularly beneficial when your sales cycle is longer than your accounts payable schedule. In fact, it is a good means to escalate the working capital and deal with accounts payable. In short, it ensures timely finance for your commercial needs.
A short-term business loan can be availed for both existing and new business ventures. Following are some of its main features:
1) Its maturation period can vary from as short as 90-120 days to as long as 1-3 years, depending on your need and purpose of applying for it. However, for these short-term finances, the repayment policies of most banks are a little stringent. For instance, if you take out the short-term finance for inventory purposes, you are required to repay the borrowed amount soon after your inventory is sold.
2) As these loans are usually unsecured, they do not require any collateral security, but are issued only if you have a good credit history. The loan-application, therefore, requires proper documents depicting your cash-flow history as well as your payment track record. Some banks do offer these loans to bad credit holders as well, but the interest charged are extremely high and not worth it.
3) The interest rates charged on unsecured mortgages are high, but the best part is that they are usually fixed and hence, do not rise.
4) To get more attractive terms and lower interest rates, you can also opt for a secured loan, which can be acquired against suitable collateral, such as property, home, equipments, or accounts receivable.
5) Before you get in touch with the lender, it is advisable to make a layout of your business plan for which you require funds. A good plan is bound to impress the lender and can fetch you the best deal.
6) This kind of loan should not be confused with business lines of credit. The latter allows you to pay the balance and borrow funds as and when you need them. On the other hand, short-term business loan offers you a fixed, lump sum of money that has to be returned within the stipulated period of time. However, once the repayment is done, you cannot borrow more.
These loans work for the cause of your business. They can help you start a new business or expand an already existing one. In short, such loans are a means of obtaining timely finance for erasing out all the immediate business needs.