What Are Short Term Business Loans Used For?

Most businesses will need finance at some stage. Business loans are commonly used to support growth, streamline operations, enhance efficiency, or, conversely, to help businesses get out of a bind. There are many different types of business loans available. An increasingly popular type of finance is a short term business loan.

In this article, we’re going to take a look at short term business loans, what they are and what they are used for.

What Is a Short Term Business Loan?

A business loan (or commercial loan) is finance provided to an individual, partnership, trust or company for business, commercial or investment purposes (rather than for personal use). The reference to ‘short term’ applies to the loan’s term – meaning that the loan will be repaid over a shorter term (usually two months to around two years). As with many business loans, online application is often possible – particularly with non-bank lenders including fintech, private lenders and specialist lenders.

Let’s now take a look at some scenarios where business owners might decide to opt for a short term loan.

Short Term Loans Help With Cash Flow Problems

In times when a business is quiet – or equally exceptionally busy, cash flow can become problematic. Naturally, if the business is experiencing a quiet period, cash flow is not going to be as regular or as much as normal. During particularly busy phases, while money might be coming in more regularly, expenses could also increase and outpace the amount of cash coming through the doors. Therefore, in either scenario, a short term loan can help ‘smooth out’ cash flow. 

Capital To Start a Business

Many startups need a capital injection to get operations off the ground. The good thing for start-ups is that there are numerous ways to obtain funding in the initial stages of your business – including specialist lenders who have flexible lending criteria, require minimal documentation and are renowned for providing funding, quickly.

 Money To Pay a Tax Bill

At times, a business may receive a tax bill that’s considerably higher than expected and there are limited funds to cover the expense. In this scenario, a short-term business loan can provide relief without impacting operations, nor adding financial pressure or using up any cash reserves.

Business Loans for Business Expansion

A short term business loan can be a good way to manage growth plans. When a business is going well, it’s natural to want to expand. This could come in the form of purchasing new stock and equipment, building larger business premises, buying another property to create a new branch of the business and so on. This all takes money: cash the business may not have upfront.

What to Consider

Most businesses focus on the source of funding. What’s arguably more important is the capacity to repay the loan. This is also known as ‘loan serviceability.’ Independently of the loan size, and type, it’s critical to ensure that you have the means to repay the loan within the agreed loan period. Work out the sales and profit the business needs to achieve to consistently repay the loan on time – keeping in mind that life doesn’t always go to plan, so it’s wise to have a buffer. It’s preferable to assess this in conjunction with an accountant. It’s also important to ensure that the lender is credible and reputable. This can be assessed by reviewing the terms and conditions and looking for reviews of the lender, such as Mango Credit reviews.

In Conclusion

There are a number of valid reasons to apply for short term business financing, and we’ve covered some of the most common in this article. Short term business loans are a fast and effective way for businesses to get the money they need to support growth or help manage challenges.

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