No matter how much success your business has achieved over the years, there may be times when cash flow management can be a headache. For instance, your payments might be due, yet a huge percentage of the receivables are still pending. Such situations can make it difficult to stay on course with your goals. Every business faces a unique set of these challenges. Being able to overcome them is what determines a business’s success.
Fortunately, the business world as it is today presents you with some of the best solutions that can help you deal with these problems. There is a wide range of business financing options that you might want to consider. However, you might need to choose between short-term and long-term loans. Both of these options have their fair share of pros and cons.
In this article, you’ll learn all about short term financing loans in particular and whether they’re ideal for your business. Here are the pros and cons of this form of business financing!
What are the Pros of Short Term Financing for your Business?
Easy to Qualify For
If you’re looking for a business financing option for which you can qualify without too much hassle, then short-term loans are your best bet. Most of them have remarkably high approval rates. Therefore, you’re almost guaranteed to receive the money, provided you meet all the minimum requirements.
Take, for example, payday loans. Inasmuch as they aren’t specifically designed for business financing, they can still technically do the job. However, you need to find one that not only fits your needs but that’s also favorable in terms of payment and interest rates. Not sure where or how to apply for payday loans? Check over here.
Keep in mind though that you might need to opt for a secured loan if your credit score is low. As such, the lender will ask you for collateral. Your limit will depend on the value of the collateral provided.
One of the main reasons that most entrepreneurs opt for short-term financing is the processing time. Are you in urgent need of money to pay off some debts or enhance operations in your business? If so, short-term financing is the way to go. Depending on the amount and the type of loan you apply for, you’re likely to get your money within hours or a few business days.
Apart from the processing time, the application process is pretty straightforward. When applying for a traditional bank loan, you must provide your personal data. You must also provide every relevant piece of information about your business. The bank will then take a few days or weeks to assess the details of your application. It is not until this after this step that they will give their final verdict.
Given the few documents required and the short application process, it takes the lender a shorter amount of time to process and approve your short-term loan. This is very useful if your deadlines are fast approaching.
What are the Cons of Short Term Financing for your Business?
High Interest Rates
The biggest disadvantage of short-term financing is the high interest rates it attracts. Given the fact that the application process is more lenient compared to that of long-term bank loans, you might end up paying more for the same loan amount. The best way to minimize the cost of these loans is to repay them as quickly as possible. Having them roll over to the next week or month will only increase the total interest paid. This can have serious repercussions on the financial well-being of your business.
Another drawback of taking this business financing option is the frequent repayment periods. A short-term loan is payable within a few months (usually not more than 18 months). Within this period, you’ll have to make bi-weekly, weekly, or even daily payments. This can strain your finances, especially if your business lacks a consistent source of revenue
Is Short Term Finance Right For Your Business – Summary
So, can short-term financing help your business? Yes, these kinds of loans can enhance your business operations and improve your cash flow, provided that you’re aware of their pros and cons. If you have temporary financial deficiencies, you might want to consider short-term loans because they’re easily accessible. They’re also the best option if you have enough money to repay the lender within the required period; otherwise, the interests might overwhelm you.
On the other hand, if your business requires a large amount of funds, short-term financing might not be the best option. In such situations, a long-term loan will work best because it’ll give you enough time to prepare and make repayments without straining the finances of your business. Also, since the installments are spread over several months or even years, the interest rates will be considerably low.