The Advantages of a Short Term Business Loan

Short term business loans can help you meet immediate needs for financing without requiring long term commitment. They are often used by businesses with a delay in accounts receivable. It is also possible to secure these loans on a temporary basis while permanent financing is arranged. Ultimately, short term loans present a flexible option due to the quick maturity of the contracts.

Dealing with Delays in Payments

If you provide services or goods to clients, then you are probably familiar with the hassle of delays in your accounts receivable. As your clients go through their billing cycle to pay you for services rendered, there may be a 30, 60 or even 90 day delay. In that time, you will have your own bills come due. Short term loans can help you pay those bills while you await your profits. Since the cost of the financing is low due to lower interest rates on the shorter contract, you do not stand to lose a lot of money by paying the bills with a loan.

Purchasing Raw Materials

You may have an order that needs filled and promises a high amount of payment in the future. The problem is you do not have the cash on hand to fill the order at this time. As such, you can take out a short-term loan to fill the required order. Using the profits from the new purchase to repay the loan and keep the cost of financing low. In fact, this type of debt cycle is highly common for small businesses that do not have long term funding arrangements. 

Expanding Operations

It is hard to capture new profits from expansion without first achieving the funds needed to expand. You may be limited in the amount of profits you can gain by the current size of your operation, including your staff, equipment and other factors of production. By taking a short term loan, you can purchase the items you need to start taking on more business. This is particularly necessary if you are in an industry with high upfront costs. For example, a dentist is limited by the amount of patient rooms she has in her office. These tools for these rooms are expensive, so the dentist will likely go into debt in order to add on another patient room. 

Arranging Permanent Financing

The goal of every business should have long term financing in place to deal with expenses they cannot immediately cover. However, taking a long term loan when the market is unfavorable or you are a young operation can lock you into bad terms in the future. Instead, consider using short term financing to get you over the immediate hump. Once your business is more established, the long term needs can be better met. In many cases, you may be precluded from gaining long term financing until you have first proven yourself through paying off short term loans.