If you are a business owner and you need some cash to finance growth, short term loans can definitely be considered. They are really good at meeting the immediate needs you have. However, repayment terms and interest rates do vary a lot more than with other loan options. This is why you do need to be careful.
If you need a loan faster than what is offered by the traditional loans, the short term loan sources mentioned below definitely have to be considered.
Most business owners do not even know that this is something that exists and it is a shame since the option is really good and the money you get does not include interest. This happens because when you buy a service or a product from a company, you get some time to pay it at no extra cost.
If vendors give you a long time to pay bills, you get more cash that can be retained inside your company so that other important initiatives can be funded. The common term in most cases is 30 days but you can also find some opportunities to go for 45 days.
Whenever more time is needed to pay for a bill, be sure that you ask for this before due date comes. You can thus get the opportunity to receive extensions as vendor trust is not negatively affected.
Friends And Family
Personal drawbacks can often appear but this source of short term loan is informal and inexpensive. Generally, people ask for a really low interest rate, something around 3%. In many cases you do not even have to pay interest rate. Also, friends and family tend to be a lot more flexible when it comes to repayment plans.
Before you get money from friends and family members, be sure that you discuss repayment plans and loan rates. You should think about getting this in one document that is signed by both the borrower and the lender. This is a great idea since it can help a lot in dealing with some disputes that sometimes appear.
Numerous financial institutions now offer overdraft as a feature on operating accounts owned by businesses. Basically, this means that the company is allowed to draw out more money than what is available in the account. This transforms that account into a business line of credit. You can pay it off within a specific timeframe, usually a year.
The bank overdraft option is one you can consider in the event that you need some extra cash and you can repay it in around one month. If the period is longer, interest rates can be higher than anticipated and you can lose control of cash flow.
Credit Cards And Charge Cards
There are many business owners that leverage charge cards in order to satisfy transactions and then pay off balance before a due date, all without interest. When this happens, you practically get a short term loan, usually under thirty days.
It is also possible to use your credit card to finance the business since cash is quickly accessible. However, a credit or charge card can easily become really expensive. Interest rates can easily top 27% annual percentage rate (APR). Even so, there are many financial institutions that are now offering balance transfer rates or introductory rates. These have low interest rates for a fixed period of time. You can take advantage of this opportunity when you need a short term loan and do not feel that you are going to use it again in the future.
Accounts Receivable Factoring
Receivables factoring is a really useful concept that practically turns the due customer invoices into quick cash that is available right now. The company is paid by accounts receivable factoring institutions. Generally, you are offered around 85% of the amount of the invoices that are outstanding. Then, when the customer actually pays the invoice, you give the money back to the institution that gave you the loan.
Keep in mind that some extra fees might also apply and there are cases in which this is not a good idea. It is an option that helps a lot when you need some quick extra cash to deal with a current lack but should not be overused. You can so easily lose control of the money you get.
This is a short term business loan option that most entrepreneurs know about. Money is given to you in exchange for a title that you own, usually your car. Clear car title is needed and the lender will put a lien on it.
The great thing about the title loan is that it is really easy to get. However, interest rate can be very high. Usually, it ranges between 35% and 100% APR. This is why you need to be sure that you carefully read the contract that you sign. Also, remember that when you do not pay back the amount in time, title lenders become the owners of your car.
Online Loan Brokers
The number of online companies that now offer short term business loans is higher than ever, with numbers quickly growing. Their goal is usually to connect business owners with lenders or can actually offer financing themselves. You apply for such a loan just like you apply for the bank loan. Usually, lenders look at credit score, profits and company sales. APR rates vary between 10 and 24 percent in most cases.
RAL (Refund Anticipation Loan)
This is a specific short term loan that is secured through the expected tax refund. You normally get these when you work with a professional tax preparation company. The IRS prohibits fee basing on refunds. Because of this, costs will vary.
Crowdsourcing should be considered by many more businesses than what actually happens right now. You get to post short term loan requirements on some crowdsourcing platforms that are actually specialized in this. Investors practically bid at specified rates so that they can give you a loan. You can be faced with pretty low rates, like 7%.
As you can see, there are numerous short term loan options that are available for businesses from all around the world and in all industries. It is not hard to find the money that you need to get out of a tight jam but you have to be sure that you do not end up faced with more problems in the future.