Ever been in a financial bind and in need of a little boost of money? Whatever the situation, we’ve all been there and it can be stressful.
Perhaps you were recently involved in a car accident, needed emergency surgery or to repair business machinery in a time crunch? This is where a short term loan swoops in like your favorite Marvel superhero.
If you’re looking for cash in a dash, here’s how a short term loan works and a few examples of it can be used…
A Short Term Loan: Characteristics and Types of Loans
Short term loans are perfect for solving tough financial situations because they are usually approved on-the-spot. Basically, this means instant cash in your bank account to help you through any life or business crisis.
However, it’s important to remember that old saying: ”money doesn’t grow on trees” as taking out a short term loan does carry a few drawbacks.
Generally, the interest rate on short terms loans can be exceptionally high, especially if you are not required to place any up-front collateral. Learn more about that here.
But the good news is that the maturity period of a short term loan is, well, short, and can be paid off in under two years.
For businesses just starting out, short term loans are an excellent means-to-an-end. They can be used as a valuable tool in the cache of small business strategies.
These types of loans come in handy if a business has not yet qualified for a line of credit from a bank, but needs a boost in terms of start-up capital. Typically, short term loan amounts vary from $100 – $100,00 and can be paid off in as little as 90-120 days.
Types of Short Term Loans
If you’re not looking to make a long-term financial commitment, a short term loan is a perfect option for you or your business. Here a few of the most popular short term loan variations:
1. Line of Credit
Think of a line of credit as qualifying for a business credit card. There is a set limit to this line of credit, but a business can tap into this financial resource as and when needed.
Monthly installment payments are made against whatever amount has been borrowed. This means monthly repayment costs will vary from month-to-month. Lines of credit usually charge much lower APRs when compared to business credit cards, too.
2. Merchant Cash Advance
As the name suggests, this type of short term loan is paid out in cash, but still operates the same way as a loan. The cash is borrowed from a lender, while loan repayments are made via access to the borrower’s credit facility.
Basically, this means that the lender receives loan repayment via each sale the borrower makes. I.e. a percentage of each sale goes back to the lender.
3. Online Loans
Quite simply, this is where short term loans are granted via online access to an approved lender. Everything is done online, from the application to the approval. From here, money is transferred to your bank account almost immediately pending approval.
4. Payday Loans
Payday loans are ideal for emergency situations and usually very simple to gain approval. But one major drawback is that the entire loan amount, plus interest, must be paid back in one go to the borrower. This falls on a specific payday date- hence the name of the loan.
This repayment is usually debited from your account by the borrower’s bank account using a continuous payment authority.
7 Simple Uses For a Short Term Loan
If you’re thinking about applying for a short term loan, here’s how it can help both you and your business:
1. Support Your Start-Up Costs
Simply put, if you need a boost to get your business off the ground, a short term loan is a fantastic means-to-an-end.
This is particularly useful if you just don’t have the funds yourself or cannot qualify for a line of credit with a bank.
2. Bridge the Gap
A short term loan is also very useful with regards to accounts receivable and accounts payable within the cycle of business cash flow.
Basically, when there is a fluctuation between cash coming in, and cash going out, a short term loan can help bridge the gap between the two. This means your business won’t fall behind on bill payments etc.
3. Business Operational Costs
As most business seasons are cyclic in nature, you may have a need for additional operational costs at some point throughout the year.
This is where a short term loan comes in to cover these additional costs to help you push through a busy time.
4. Business Emergencies
In this instance, a short term loan can help save the day when it comes to major machinery meltdown or major maintenance needs. A short term loan can take the pressure off financing repairs or losing production time over maintenance needs.
5. Additional Cash Flow
A short term loan can essentially work like an overdraft facility when cash flow is tight within your business.
Due to the fact that short term loans are so easily and quickly paid off, this makes them ideal for temporary cash flow resolution.
6. Staffing Seasonal Trends
This is particularly related to busy seasons for most businesses, such as the Christmas, Easter, Thanksgiving season and other popular holidays.
During these seasons a business may need to hire extra staff, so a short term loan can come in handy to cover the cost of increased wages.
7. Funding Inventory
When it comes to the retail industry, inventory is a major expense for any business. A short term loan can help ease the pressure when buying inventory well in advance before a busy season hits.
Find Handy Business Hacks Here
If you’re looking for more advice on how to qualify for a short term loan or a plethora of other business advice, our website has what you’re looking for.
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