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Know When to Look for Short Term Financing Options for Business

Posted On: May 15, 2020 author Paul Kendall

Are you a business owner? Then you should know when to look for short term financing options.

You see, many business owners eventually find themselves in a position where short term financing options can be useful. It’s typically when they need a quick source of added funds.

Short term financing is easy to acquire because it has fewer requirements and restrictions compared to other forms of loans or financing.

But just because there are plenty of short term financing options for business, it doesn’t mean that you should always get this type of financing.

You need to assess the situation of your business before you make a choice to go into business debt. Short term financing options for business have advantages, yes... but can have disadvantages too. 

That’s why in today’s blog post, we’ll talk about the right time to look for short term financing options for business.

Using the Short Term Financing Options for Business

 

In business, there will be instances when you need extra funds. Getting a loan or financing becomes inevitable then.

When you’re about to get a loan, make sure that it fits the current situation of your business. That’s because the form of business loan or business financing will determine the future of your business operations.

For example, say you choose the right financing for your business. This will give you plenty of benefits that will help your business operations.

The opposite might happen if you chose the wrong type or form of business financing. You might end up having more financial problems than before.

With that said, here are some pointers on choosing short term financing options for business. After we go over them, we’ll talk about when you should pick short term financing, when you shouldn’t, and where to get it.

 

Examples of Short Term Financing Options for Business

 

First, note that there are many forms of business financing or loans for business. Each of them serves different purposes.

But if you need quick funds, short term business loans are the right choice for your business.

Short term business financing is a type of financing where the borrower has a short repayment period. Usually, you will have to pay the debt in 12 months or less.

There are many types of short term loans. To give you an idea, here are some of the most common examples:


know-when-to-look-for-short-term-financing-options-for-business-business-cash-advance

Business Cash Advance 

 

This type of short term business financing is based on your future revenue. Essentially, a cash advance sells future sales to the lender at a discount -- and usually, a lender will lend you an amount based on your previous deposits. 

The cash advance is perhaps one of the easiest short term financing options for business. This is because lenders generally have low requirements for it.

The flip side of the coin is that it’s often among the options with the highest interest rates. Being short term financing, cash advances also need to be repaid swiftly -- often within a year, although it depends on the terms your lender sets.

Business Line of Credit

 

This type of short term business financing lets you borrow only as much as you need and up to a certain amount (this amount is set by the lender). That means you only need to pay interest too on the amount borrowed. 

While the business line of credit may thus seem attractive to many business owners, you do have to make sure you get it from a good lender. Online financing companies like Trust Capital offer more benefits for a business line of credit. 

With a credit line going from $10K to $250K and flexible payment schedules that may be either weekly or monthly, they offer some of the most appealing terms for this type of short term financing.

Business Invoice Factoring

 

This type of short term loan is the easiest to acquire. You can even get your funds in a couple days after you get approval, so it’s great if you need the money quickly. Get a credit line based on the strength of your customers. As your sales grow, so can your credit limit. Your business can decide how many and which invoices to submit. Then you can fund only what you need, when you need, without long-term contracts. Applications are short with basic details about your business and customers. Good online lenders will automatically sync your invoices from your accounting software or upload invoices to your online dashboard. The online business invoice factoring lender will provide 85 - 90% of the money upfront. You get the rest, minus a small fee, once the invoice is paid.

Businesses generally need to have over a 550 FICO score, a minimum of $10,000 in monthly revenue and over three months in business. 

When to Look for Short Term Financing Options for Business

 

Now, short term financing options for business are fairly easy to access. You can usually get such financing right away as long as you have the required documents.

However, you have to make sure that you really need it for your business to avoid having unnecessary expenses. 

So, to help you decide, here are the instances where you need to look for short term financing options for business: 

If You Need Quick Cash

 

If you need quick cash, it’s best to look for short term financing options for business.

Short term financing options for business are often offered by online business financing companies. Most of them have a simple one-page application.

The approval will be given after a few hours or minutes. You can even get funded on the day you submit an application!

If You Have Seasonal Income

 

Seasonal businesses often experience income fluctuations. If your business is seasonal, you’re going to have a hard time keeping your operations running outside of peak season.

You should consider looking for short term financing options for business in times like these. The additional funds will help you acquire equipment or hire new employees to keep your operations going. 

If You Have Unimpressive Credit

 

Traditional bank loans and other forms of financing often require a good credit score. So, if you have bad credit, looking for short term financing options for business could be the answer.

Most short term financing options for business have lower requirements than regular or long term loans. Even businesses with a bad credit score can get approval.

That’s why if you can’t secure other forms of loan and financing, short term finance is one of your best options. 

 

When Not to Get Short Term Financing

 

Though short term financing options for business can be the answer to some financial problems, it doesn’t mean that they’re always the answer to your needs.

You need to look for other options if you’re experiencing the following: 


know-when-to-look-for-short-term-financing-options-for-business-business-cash-advance

You Don’t Have Personal Savings

 

Most lenders of short term financing don’t require collateral. However, that often means that if your company fails to repay the borrowed money, you need to personally pay for it.

Your personal credit will be on the line if this is the case. So, make sure that you can cover the borrowed money if your company fails to get a good ROI from the loan.

Your Company Doesn’t Generate Lots of Money

 

Short term financing may involve a high interest rate. The interest rate usually depends on your business’s credit score, though.

If you have a good credit score (above 750), you’ll get a fair rate. It can also happen if you have a credit score of at least 600 above.

You’ll see a high interest rate if you have a bad credit score (below 600). 

All though, Fast business invoice factoring usually only cost 2-3% per month regardless of your credit score as long as its over a 550.  

You Don’t Have a Stable Income

 

You should avoid getting a loan or financing that needs to be repaid in a short time span if you don’t have a steady flow of customers.

In such a case, you won’t have a stable income. This will make it hard for you to repay the borrowed money.

Where to Get Short Term Financing

 

You can consider getting short term financing from traditional lenders like banks. But to save your time, you should get it from online business financing companies.

Online business financing companies have quick application and approval processes, generally. As noted earlier, you could even get the funds from them in just one day.

However, you should be careful with some online financing companies. Some of them have hidden charges or dubious policies.

Thus, it’s best to look for or check reviews online to see which is the most reliable online financing company. Moreover, you need to inspect the terms of their short term financing programs with care to find the one that best suits you.

Let’s say you’re looking for a line of credit, for example. You should check out things like these:  

  • If there’s a pre-pay penalty (ideally, no). 
  • If the repayment schedule is flexible (ideally, yes).
  • If the credit line renews automatically (ideally, yes).
  • If you can request credit line increases at some point in the payment term (ideally, yes, in case you need more cash).

 

If you find a line of credit that offers mostly the right answers to these queries, that’s a good option. 

For example, Trust Capital’s line of credit program actually ticks all the right boxes in the above list, so it should be a top choice for most people seeking a line of credit.

 

Final Thoughts on Short Term Financing Options for Business

 

In this blog post, we talked about short term financing options for business.

Short term financing options for business are often easy to acquire. They have fewer restrictions since they only involve a small amount of money. 

But despite that, you have to make sure that you really need the short term financing options for business. Just like other loans, short term financing options for business can have both advantages and disadvantages. Your two best options for short term business financing are a true line of credit or a fast business invoice factoring loan.

In any case, you should have a better idea of when to go for them or to steer clear of them now. Just keep the pointers we discussed in mind.

And if you determine that you do need short term financing options for business, contact Trust Capital at (866) 458-4777. They can help you figure out the best short term financing options for your business.

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