A short term loan means an amount borrowed for a period of 3 to 18 months. The amount is paid back either with interest through installments, or through a payment at the end of the tenure.
The rate of interest and the mode of repayment is pre-arranged and agreed between the lender and the borrower.
A short term loan can either be secured through collateral or unsecured. The interest rate of unsecured short term loan is higher than a secured loan. The collateral in question could be anything valuable owned by the borrower.
There are several benefits of short term small business loans. We will discuss some of them in the article below.
1. Easy Application and Quick Processing
There are many lenders in the market who are allowing swift processing of short term loans. In fact, the business owner does not even need to visit the offices of the lender.
The whole application process can be completed online within a very short span of time.
Traditional lenders like commercial banks and financial institutions waste a lot of valuable time during the completion of the application process. Then, there are meetings, interviews and analyses.
Since the capital requirements of a small business are very limited, wasting time going through this procedure should not be recommended.
Simply fill in the loan application form on the internet. The amount will be disbursed into your account within a specified time.
2. Flexibility of Repayment Terms
Flexibility in loan repayment terms could also boost your business, especially if it is in a nascent stage.
The best thing about short term loans is that they are very flexible. The borrower can choose any repayment term that works best for business. A borrower can choose to pay off the loan in equal monthly installments if the cash flows allow, or simply commit repayment of the entire loan and accrued interest at the end of the loans tenure.
The interest rates on short term loans are very reasonable.
If you have enough cash flows within the next six months, you may choose to retire the entire loan earlier. Some lenders offer you this opportunity of early loan retirement without any penalty. This allows you to save the interest expense to be accrued for the remaining period.
The amount saved through early loan retirement can be re-invested into the business so that it may continue to grow steadily.
3. Business Expansion
There is a widely held false belief that businesses require loans only for covering their cash deficits.
This is an important reason to secure a loan, however, a business may also apply for a loan in order to expand its horizons.
Take for example, a small store. If you are running this store successfully, you might want to open another bigger store. For this purpose, you can secure a short term loan, and use the money for the same purpose.
In the above case, the short term loan will serve as a much-needed capital.
Of course, you will need to share your business plans, your current cash flows, and other documentation with the lender. If you opt for a secured loan, a collateral should also be available.
It is much easier to find a lender willing to provide short term small business loans. This could be any non-traditional lender or a credit union. The point is that, if you are able to obtain this loan on time, it will help you boost your business in more ways than one.
4. Defense Against Seasonal Shocks
A seasonal shock refers to the decrease in demand of a business owing to seasonal changes. A clothing store selling only woolen clothes will see decreased demand during the summer season.
These fluctuations occur during particular seasons, and are deemed as part of doing business.
Very few businesses are immune from seasonal slumps which, though very minor at time, have the ability to disrupt the entire cash flow.
During these times, the business needs another source of fund in order to cover expenses for the time period.
A short term loan proves to be a great option in such a scenario. You can inject ready cash into your business so that its operations continue to run smoothly even when demand is limited.
Another problem that business owners need to confront during low seasons, is the payment to its employees. All employees must be paid full salaries even when there are very little sales.
A short term loan allows payroll payment without any delays.
5. Improvement in the Credit Score of the Business
Every business runs on risk.
There are many risks associated with doing a business. All of those risks can neither be foreseen nor mitigated.
The one thing that comforts business owners is their ability to secure short term loans from lenders at any given time so that they are able to survive through the bad times.
This brings us to the most important thing while you apply for a loan: your credit score.
If your credit score is poor, you may face difficulty in obtaining a loan. On the contrary, if it is good, any lender will be glad to extend loans to your business.
With the help of a short term loan, you can also improve the credit score of your business and thus, increase its chances of getting loans whenever required.
If you have secured a short term loan for your business, and you are able to repay it within the stipulated time without any delays, it will look great on your credit score.
In this way, you not only fulfil your monetary requirements, you are also able to improve your credit rate, which would increase your chances of obtaining another loan when you need it.
The Final Word
There are times in the usual course of business when it is short of cash and seems to be going down under.
This is not a situation that should panic the business owner. There’s always an option of securing a short term loan which will take care of their urgent financial requirements.
The loan can be repaid from the future cash flows in easy and manageable installments.
Short term loans boost your business in many ways. They are easy to avail, and even easier to repay.