A short term loan spans over less than a year. This means that you must return it to the lender within 12 months with interest.
Short term loans are usually sought after by businesses for several reasons. There might be an urgent need of cash for purchasing raw material for a big consignment.
There may be a delay in payments from customers and salaries must be paid to employees. In most cases, a short term loan will take care of your immediate cash needs without disrupting your business in the form of withdrawals.
Below, we will discuss a few ways in which a short term loan can help you grow your business.
1] Keeping Absolute Control of Your Business
If there is an urgent need of cash, there are limited options available to business owners. They might opt for a loan, or take someone on as partner who will invest money into the business in the form of cash.
The second option is less desirable for most people because, if someone else becomes co-owner of your business, you lose absolute control over it. Moreover, you will also have to share your hard-earned profits with another person.
There is another drawback of including a co-owner which you may encounter in the long run. If you ever want to sell your business, you will need his or her approval.
Securing a short term loan from a lending institution will save you from all these problems. You take the money, resolve your immediate cash flow issues, and return it as soon as you can.
There is little hassle involved in securing a short term loan compared to the benefits that can be reaped from it.
2] No Mixing of Personal Funds with Business
There are times when business owners are tempted to take care of their businesses cash problems with the help of their personal funds.
This may solve your problems for the time being, but it can become a headache in the long run. First of all, you need to submit your personal and business accounts to the IRS separately.
At some point in time in the future, if you are unable to separate your own funds from the business, it will become really hard to file your income tax returns.
Another drawback is that your own credit rating as well as your business’s can suffer because of this fund-meddling. It is thus better to keep your personal funds separate, and utilize a short term loan to fulfill your monetary requirements.
3] Better Management of Inventory
There come times during normal course of businesses, when the inventory becomes very low, and needs to be replenished immediately. A short term loan can be useful in such a situation.
The credit allows you to replenish your stocks within no time.
During holiday seasons, there is a notable increase in sales. The business is required to add more items to the inventory to cope with the sales load. A short term loan can fulfill the cash requirements in such situations so that you may reap the benefits of the holiday season.
4] Value Addition
No business can survive or thrive in today’s world without constant value addition and improvements. This would include supplementing your existing equipment with newer and more efficient add-ons.
These additions could prove to be a drain on your personal finances if you try to finance them with your money. A short term loan from a lending institution will not only allow you to carry out value additions, but the nature of the loan will make sure that you are able to retire it within a short time without disrupting your cash flows.
5] Hire Extra Resources
As your business becomes bigger and better, you will be required to hire more resources to manage its day-to-day operations in an efficient manner. Extra resource needs extra money.
Initially, for some time, you will be required to pay those resources from your own pocket. You can save this drain on your personal finances by securing a short term loan.
With the help of this loan, you will not only be able to pay off your extra staff, you will also be able to hire part-time help, and even some seasonal staff for the holiday sales rush.
6] Business Expansion
No business owner would ever want his business to remain static. There is always a craving for expansion, to conquer new horizons, and to add new products to your existing stocks. These days more and more people are trying to take their business online.
All these operations require a lot of money, But, it is an investment which is bound to give you great monetary rewards in future.
A short term loan will allow you to expand your business with great ease.
7] A Respite for Slowdown in Cash Flows
Sometimes, a business will experience a slowdown in activities due to seasonal influences. During those times, the cash flows are decreased and taking care of daily operations becomes a difficult task.
These are temporary issues which go away after some time. However, you do need extra cash to manage day-to-day operations and paying salaries.
A short term loan proves very useful during these business lulls. They allow you to run your business smoothly even during off-season. The loan can be repaid once sales become normal.
8] Keeping Clear of Conflicts with Friends and Family
At times, when you are experiencing cash problems with your business, you may be tempted to request either your friends or family members to bail you out.
This seems like an easy decision but once you have taken loan from someone you know, it can become a source of unease within the relationship. You might also find those acquaintances trying to influence your business decision. You can save yourself from all this by securing a short term loan.
9] Lower Interest Rates
Unlike a long term loan that spans over a period of more than 12 months, a short term loan features reasonably lower rate of interest.
This is beneficial for businesses since they are able to fulfill their monetary obligations with the help of these loans without incurring huge amount in financial charges.
10] Peace of Mind
The best aspect of a short term loan is that it allows you to have pace of mind. You are no longer required to keep monitoring your cash at all times, and worrying about business expenses.
You know that whenever there is a need for cash, you can always secure a short term loan.
The Final Word
Short Term loan is a phenomenon that has made its way into the business mainstream only recently. With the exponential growth in businesses owing to the Internet and social media, entrepreneurs are beginning to realize the utility and benefits of short term loans, and how they can reap rewards by securing it in times of need.