Every business requires to borrow some finances at a crucial phase of its operation to survive difficult circumstances. The loans are acquired for expansion to another region or to smoothen the functionality of an organization. Small ventures, especially those that don’t have a consistent cash-flow, require access to quick cash to adhere to the deals and agreements.
Not every business has the financial and professional capacity to sign long-term loan agreements with strict repayment terms. Therefore, they look for shorter and feasible solutions to fund themselves and achieve their milestones. The situation can be gauged by the fact that governments around the world have announced special concessions to the organizations to help them avoid layoffs due to the current lockdown.
In such situations, any business, regardless of its standing, will be compelled to borrow some funds sooner or later. Such a scenario requires that we equip ourselves with the basic knowledge of short-term loans, their characteristics, and types. So, let’s review these three areas in chronological order.
Understanding the Short-Term Loan
As its name suggests, a short-term loan is designed to cater to the needs of small businesses. It has flexible terms and shorter duration of repayment, coupled with some concessions. Also, it takes a short amount of time to apply for one of these loans. The availability of online lenders has made it quite easy to get in touch with a lender and expedite the process.
A short-term loan may be generated through a bank as well as other lenders. Since it is designed as a convenient solution, it requires rather simple criteria for qualification. It is beneficial to check out several best short term loan lenders, and then decide which one to go for.
Characteristics
Going further into the depth of understanding the loan type, let’s have a look at some of its salient features, as follows.
1. Timespan
As mentioned above, the short-term loan has a very small repayment duration, usually from six months to around 18 months. Any loan that exceeds this duration may rather be called a medium or long-term loan. Such a short framework of repayment poses both an opportunity and a challenge. On the one hand, a small business can make use of the finance expeditiously, while on the other, they need to ensure they return the amount within the decided period.
2. Criteria
Any company that has been operating for a few years can borrow the loan. Also, your organization may need to furnish a clean payment history to qualify for it. If you don’t have a certain default on your record, you should be able to acquire the finances in no time.
3. Collateral
Since it is designed to facilitate the small business owners and those who require speedy cash, it does not require collateralizing of the assets. It is typically due to the relatively shorter amount and duration of the loan.
Let us now look at the different types of short-term financing options to enable you to make an informed decision.
4. Merchant Cash Advance
A Merchant Cash Advance is a fast way to borrow the much necessary funds. It works by your lender, providing you with the required amount of cash. In terms of the repayment, they deduct the amount from your future credit card sales. It is different from the conventional methods in the sense that you don’t have to repay the amount on a weekly or monthly basis. Secondly, you need to remain savvy of interest as it can accumulate within a short period.
5. Invoicing Financing
Another quick way to gain some cash fast is to make use of any of your unpaid invoices. This option is truly feasible because it won’t require that you set up a repayment schedule. Whether it is for dealing with a troubling financial situation, or buying some equipment, signing up for this agreement can prove to be beneficial for you.
7. Payday Financing
These are a relatively lesser-known but authentic means of financing your business. Known as the emergency a short-term payday loan option, this option can help you have cash in your hands in no time. However, a downside is that you have to repay the entire amount, including the interest on a specific, mutually decided day. Another drawback is that due to its demand, this loan has a very high interest rate.
Conclusion
Financing your venture becomes increasingly important in an environment of uncertainty. The situation that has emerged following the COVID-19 outbreak calls for urgent measures to safeguard businesses and avoid layoffs or shutdowns. The points mentioned above are some of the fastest ways to borrow funds, and one of them should be chosen based on specific business needs. Last but not least, remember to check for any concessions or packages before you opt for any of these options.
