Short Term Business Loans

Short term business loans can provide businesses with immediate liquidity for expansion or to withstand a poor business cycle. They are called "short term" because their repayment terms are typically a year. Because the loans are shorter term, you will be assessed less interest over the term of the loan. There are a number of factors to consider when determining if a short term loan is right for you. 

Need for Working Capital

Every business needs liquidity to pay for monthly expenses. Expenses can include rent, employee salaries, raw materials and smaller costs such as Internet, phones and janitorial fees. Most businesses also need capital to invest in developmental business sources. Business development can be recruiting top-level employees, acquiring a competitor or expanding into new markets. Both day-to-day overhead and the business development expenses can only be met if a business has working capital.

Looking for Bridge Financing

Bridge loans or bridge financing typically refers to very short-term loans, three months or less. Bridge financing gets a company through an immediate need while long-term financing can be secured. Some small companies use bridge financing to give them access to capital while they are seeking private investors. Pitching to private investors and equity groups requires a degree of professionalism including a business plan and product specifications. Without these necessities, it is difficult to secure investment capital. Using bridge financing can get a company off its feet, without locking it into years of monthly payments for long-term loans. 

Expansion Loans

Many people say that businesses are either expanding or failing. Business owners must regularly offer increased salaries and improved working conditions to retain employees, which means overhead goes up each year. The business's profit must additionally increase, or the expenses will quickly outgrow the budget.

There are times when business is at a standstill and cannot expand further without a loan. This is mostly true of businesses which have fixed income based on their raw materials, such as trucks, tractors, factory size or store size. When the business is capping orders, it is time to expand to raise that cap. Short-term expansion loans can allow a business to get into a bigger facility and increase its output to get in-line with consumer demand. 

Downsides of Short-Term Business Loans

Short-term business loans have higher interest rates which means monthly payments are high. All business owners seek loans with the belief they will see a rise in profits to pay them off, however, sometimes circumstances prevent this rise in profits from occurring. Exercising good judgment and caution when taking on a short-term loan is crucial because the time line is so stringent.