Small businesses often think of expanding product or service lines or filling cash shortages. Fortunately, there are short-term loans available to help with funding. It’s best to know about your lending institution and assess your purpose while pursuing the loan to determine which type of funding suits your needs. Just like traditional loans, short-term business loans also require applicants to pay interest on the principal advance. However, they usually involve smaller cash sums and shorter repayment periods. So, short-term loans help businesses get an infusion of capital. 

Want to know when and how to use short-term loans for your small business? Here are a few reasons that small businesses may want to pursue short-term loans over other lending types.

1. Startup Costs

Whether it is launching the products or fulfilling pent-up market demand, short-term business loans help entrepreneurs to finance their start-up loans. Short-term loans provide a small infusion of money needed to get the business up. It also helps in implementing necessary operational upgrades to make sure your business operations always stay in line with the goals and needs.

2. Bridge Seasonal Gaps

When it comes to Black Friday sales or holiday season or other special shopping days, short-term loans can help retailers or short-term loans for small businesses cover their costs for holiday shopping demand.

You can also take advantage of supplier discounts by getting a short term loan and paying in advance

A short-term loan can help you take advantage of a supplier discount for paying in advance until your accounts receivables make the payment.

Thus, short-term loans fill the seasonal gaps in accounts receivables and payables and maintain the balance.

Many occasions and festivals demand extra capital and staffing. With the help of short-term loans, you can also acquire extra capital and staffing as per the demand and needs.

3. Resolving Cash Flow Shortages

Shortage in the cash flow happens when more money flows out of a business than flows in.  

Short-term loans can be helpful to resolve cash flow shortages. If your business has an uneven sales structure, a short-term loan can be very beneficial.

It can also help you bridge the gap when finding funds for supplier bills and other expenses.

4. Cover Emergency Repairs

Unexpected issues can occur anytime. You’ll need to get ready to deal with the emergency damages and repairs. There comes the need for short-term loans which can help small businesses deal with emergency response effectively.

Short-term loans can provide you with small cash on hand and prepare you to get back on track with the ideal conditions. Whether it is computer server crashes, equipment breakdowns, or natural disasters, you can withstand any loss effectively.

5. Purchasing Inventory at a Discount

A short-term loan can help businesses to purchase inventory at a discount that can allow businesses to expand and make more profits.

A short-term business loan facilitates the total cost of hiring seasonal workers.

Pros of Short-Term Loan

  1. It can help you build a good credit score if your business has a low credit rating.
  2. Helpful for start-ups to start a business.
  3. Covers short term operational costs
  4. Short term finance can easily bridge cash flow gaps

Cons of Short-Term Loan

  1. Short-term loans must be paid off more quickly than long-term loans.
  2. Have higher interest rates than their long-term counterparts.
  3. Short term rates vary based on the risk associated with the company

Why Does the Purpose of Short Term Finance Matter?

short-term-finance-matter

As technology is evolving, the way small businesses get a small loan is also changing. Know your purpose to understand which short-term financing is best suited and meets your needs. 

Focus on specific loan types, loan terms, and other criteria that perfectly fit your business. For instance, a short-term loan needed to purchase inventory at a discount would be different from financing the construction of a new warehouse.

Sometimes, it doesn’t make sense to borrow funds for several years when your needs are short-term or the value of the asset you’re borrowing a loan for has a short lifespan.

Need a Small Term Business Loan? Global Connect Pro is here for you

Short-term finance is a tool to help businesses start, expand and create a stronger business credit profile.

Global Connect Pro is a renowned finance lender that has been providing a range of financial services including small term business loans. We’ve helped thousands of small business owners access small-term funds with a loan term from three months to 24 months.

We assess business needs and help in building a strong credit profile. So, what are you waiting for? Get in touch with us and achieve your goals.

FAQs

Q1 – What is a short-term business loan?

A short-term business loan provides a small fund (lump sum payment) to businesses or borrowers in order to fulfill business needs with the repayment period ranging from three months to three years. Having a short repayment period means this type of financing is best to manage an immediate cash flow gap, an emergency cost, or immediate operational needs.

Q2 – How do short-term business loans work?

Short-term business loans are term loans that range from three months to three years with short repayment periods. With a shorter repayment period, your monthly payment including interest and other fees will be higher than a long-term business loan which usually goes up to 25 years.