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So, what’s great about a short-term business loan?

July 10, 2018

If you’ve ever used a short-term loan to solve a problem or pursue an opportunity, you’ll know the answer to this question. If you haven’t, then this article might help you understand!

Using short-term business loan finance is all about achieving your short-term business goals and the secret is to match the term of your finance need with the term of your funding solution – at least as far as possible.

Consider these points when assessing your options in raising cash urgently:

Finance that ‘keeps up’ with your business

Traditional bank lending practices and current SME business practices are becoming increasingly incongruent. This is part of the reason why small businesses and banks are often at odds with each other when it comes to lending – especially when needs are extremely urgent and short-term.
Specialist short-term business lenders break this bank/borrower impasse – with speed and efficiency. At its most basic, when you’re looking for a short-term commercial loan what you want is an easy application process and then access to funds quickly.

Competent lenders will give conditional approval of an application within 48 hours and funds can be settled within days of completion of diligence and signature of documentation – usually within one to two weeks. Much of the paperwork and red tape that delays the bank and second tier lender process is avoided – and discretion can be applied at every stage of the process as required. What this means is short-term lenders have greater organisational freedom to meet their clients’ needs.

Work-outs for working capital crises

Although the cash flow cycle in business is circular, there will always be variations in parts of the operating cycle – debtors delay payment, creditors change terms, stock becomes obsolete. As real cash flow difficulties can arise in situations where the ‘normal’ working capital cycle becomes disrupted, it’s important to understand and allow for the full normal cycle, including predictable fluctuations.

Variations that arise through random, unpredictable factors are more difficult to deal with though, and matching the temporary funding response to the type of working capital need is essential.

There is a wide range of ways to fund ongoing working capital – the most common of which is debtor factoring or invoice discounting. However, for urgent, unexpected working capital needs, the business debtors alone may not meet the lender’s security requirements and this is where a short-term secured loan can prove valuable.

Fast approval, quick settlement and tailored terms let you work through unexpected blips in your operating cycle. The loan could allow you to purchase inventory opportunistically, to relieve an accounts receivable build-up, or to access equipment that is needed for only a limited time.

Just part of a long-term plan

If what your business needs is a long-term solution, don’t compromise with a short- term loan and hope the cash flow problem will just melt away. Consider a short-term loan as a ‘transitional’ facility that takes pressure out of a crisis-situation and buys you time for an uneventful transition to a long term, mainstream funding solution.

In addition, be realistic about your ability to get approval for a long-term solution as you don’t want to be stuck in a short-term facility with the potential of onerous repayment obligations that you may struggle to meet.

An experienced short-term lender understands the risk and consequence of a temporary need becoming permanent and they will not knowingly advance you a short-term loan today that could have adverse impact on your cash flows in the longer term.

So, how do the costs balance the benefits?

Compared to traditional longer term bank loans, short-term loans do usually come with higher cost.

However, in assessing the cost and merit of a short-term loan offer, the most important consideration is opportunity cost.

What are the costs to the business of not borrowing when needed – what upside opportunity will be missed? In addition, a premium is deserved for the sheer speed of loan solution provided.

Finally, there is the short repayment period itself. Total costs for a short-term loan in absolute terms can even be lower than for a longer-term loan set at a lower rate for the same purpose. There is a misconception that short-term loans can get businesses into trouble, rather than helping them to avoid trouble, and this has been exacerbated in part by irresponsible lending practices. However, a professional, experienced and well-resourced short-term lender (not a financial middleman purporting to be a lender and charging huge upfront fees just to assess an application) will provide a loan solution when your need is unique, urgent and temporary.

Being just one of the myriad loan solutions available in the finance and banking sector, secured short-term business loans play an essential role in keeping the wheels of commerce moving.

Properly utilised, a short-term loan from a responsible short-term lender like Platinum can be the catalyst for long-term, sustainable success.

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