5 Scenarios for a Good Short Term Business Loan

A short term business loan is a useful tool for a business to meet immediate financing needs. There are a number of ways this scenario can be not only useful but necessary. Most businesses will need to rely on loans at various points during their life cycle, and short term loans are an essential part of the equation.

Start Up Loans

The first time a business takes a loan will be in the start up phase. It is typically not possible to fund the purchasing of all the goods and materials necessary to start even a small business without going into some debt initially. Since the business is not yet established, it will have no credit and the business owner himself or herself will have to seek the loan on behalf of the business. This is highly risky. Once the business is profitable, a long term arrangement can be made whereby the business is taking the loans without using the credit of its owners. 

Temporary Loans

There will be times in a business cycle where long term financing will be necessary but not achievable in the immediate future. For example, a business may be pitching a concept to a group of investors at a conference. In order to do so, the business will need to create prototypes or a presentation. While the business is hoping to gain investor funds in the long term, short term financing to meet the needs of the pitch can be obtained.

Purchasing Loans

If a customer has placed an order with a business, the business must fill the order, whether it is a good or a service. Since the customer has not yet paid, the business will need to spend either reserve funds or loaned money to fill the order. This type of purchasing loan will then be paid off once the customer remits payment for the service. 

Expansion Loans

Some business owners will know they can capture new profits if they expand to take on a higher volume. Expansion may mean purchasing new equipment, buying a larger office or even employing more associates. In any of these scenarios, expansion costs money. Though the business plans on gaining new profits after expansion, it will only have the current profits to support the move. As such, the business will likely need to take some type of loan in order to expand. A short term loan is preferable in this case because it will be paid off immediately with the new profits from the expansion. This lowers the cost of financing.

Delayed Payment Loans

Not all clients and customers pay their bills on time. As such, a business may be stuck in a situation waiting for payments while it, too, must pay bills. Short term financing can allow a business to get through a period of waiting for payment to arrive on past services. It is preferable to attempt to speed up accounts receivable to avoid the situation in the future. However, this is not always possible, and short term loans will at least save the business from missing its own payments.