A short-term loan may be the answer to your cash-flow or capital problems but only if you go about it the right way. Running a small business is no easy feat and financial issues do come up. A short-term loan is a good choice if you need money quickly or can’t qualify for a traditional bank loan due to your credit history. Below are a few good business uses for a short-term loan.
Some businesses can’t wait until you have scraped up the capital to launch. You may have identified an urgent gap in the market or need to secure your provisional patent protection. It may be that the only thing you need to get started is operational upgrades such as cloud storage space or more processing power. If you need to launch a business as soon as possible and cannot wait another day to secure a bank loan, a short-term loan could be the solution.
Meet Urgent Operational Costs
Operational costs can rise suddenly such as a large order from a client or unprecedented surge in customers requiring you to hire more staff. You definitely can’t wait around for the bank to go through your loan application and hopefully approve it and finding investors on short-notice may not be possible. Short-term loans can help you cover the urgent need whether it is buying a piece of equipment or hiring more workers for a short time such as the holidays.
Gaps in Accounts Payables and Receivable
Seasonal businesses often find gaps in account receivables or payables. A florist, for example, may be looking forward to a sudden spike in business on Valentines Day but may not immediately have the money to buy inventory to meet the demand. It might also be that the florist is offered a large discount for paying in advance. Whatever the case, short-term loans come to the rescue and are easily paid off from the sales profit.
Fill a Cash-Flow Gap
If you have some money coming in at a future date but have expenses that cannot wait until you receive the money, a short term loan can be the answer. It ensures that you continue with your normal business operations until your cash-flow recovers. Cash flow gaps are hardly uncommon in the business world and there is no reason to hold off important bills that may accrue interest when you can get a quick loan to cover the expenses as soon as possible.
Finally, unexpected repairs and incidents come up from time to time and you aren’t always prepared. It might be malfunctioning equipment or a server crashing. Whatever the case, a short-term loan can help you take care of the problem especially if it affects your normal business operations.
There are many great reasons to take out a short-term loan when running a small business. Remember that these loans attract considerable interest so you should only consider applying for one if absolutely necessary and don’t have any other cheaper alternatives.