Small business owners know that there are times when cash reserves can dry up. This may be as a result of unexpected repairs to equipment, an unanticipated re-supply of stock, a brief period of lower demand for goods or services, a temporary revenue shortfall, or simply a month or two when the numbers don’t quite add up as expected. It happens to most enterprises at some point, so there’s no need to be unduly worried.
To help you over a temporary financial hurdle, you may benefit from taking out a short-term business loan. This is a type of finance that provides your small business with an injection of working capital. You will receive a lump sum that must be paid back over a set time, usually a shorter window than other loans. When you take out a short-term business loan, there may be lender fees added, and the interest rate is also likely to be higher than loans paid back over a longer period.
In this article, we’ll talk you through the advantages and potential disadvantages of this solution.
Advantages of short-term business loans
Quick and convenient access to working capital
The key benefit of using a short-term business loan is that it gives you fast access to the cash you need to keep all aspects of your company operational. You will not be required to make cutbacks to staff hours, miss payments to suppliers, or hike up your prices. Instead, you can inject money into your business to ensure that there is no disruption.
Pre-agreed payment structure
There are no surprises with a short-term loan. The payment structure is created and agreed before prior to the transfer of funds. You will not be hit with unexpected fees, just as long as you keep to the payment schedule.
Suitable for a variety of business purposes
A short-term business loan is not limited to one specific purpose. Once you’ve agreed terms with a lender, the funds can be used however you like. Whether you need to make up a shortfall in wages, pay a bill, or purchase new stock, it’s entirely up to you.
Limited paperwork
With a short-term business loan, you will not need to deal with the hassle of endless paperwork. An increasing number of loans can actually be secured online. If you are considering a short-term business loan, Loan Call can help you to find the right lender. Check out how it works by clicking here.
Disadvantages of short-term business loans
Payments can be difficult if revenue fluctuates
The circumstances that created a need for a short-term business loan may also affect your ability to pay it off in the future. Consider whether any revenue fluctuations are to be expected over the course of a payment plan.
Relatively high APR
As the payment period is relatively short, and loans are unsecured, you may face a high APR. This must be factored in when budgeting the repayment of a short-term loan.
Loan amounts are capped
If you have a need for a significant injection of cash, a short-term loan may not be right for you. An investor or long-term business loan are more effective in these circumstances.
