Short term loans pose a number of additional benefits for small business owners, all of which we’ll be delving into below.
Firstly, what is a short term loan?
Put simply, a short term loan lets businesses borrow a set amount of money upfront and pay it back, with interest, at regular intervals. As the name suggests, payment terms are shorter than long term business loans and usually range from 3 to 18 months.
Another difference between a short term loan and its longer counterpart is that a short term loan can be either secured or unsecured. There are pros and cons to both options. You’ll benefit from lower interest rates with a secured loan but will not have to put up any collateral (such as your home or car) with an unsecured short term loan.
Without further ado, here are the 7 benefits of a short term loan for your business…
1. Short term business loans have a quick application process
Many lenders now offer a quick and easy application process for short term business loans, allowing business owners to apply for a loan online in as little time as possible.
Unlike traditional lenders (such as banks), we believe that you shouldn’t have to spend days putting together paperwork or scheduling meetings just to access the capital your small business requires. Our loan application can be completed in as little as a few minutes, all from the comfort of your own computer.
2. Short term loans are usually obtained faster than traditional lending
Thanks to alternative lenders such as Lumi, short term loans can be approved within just 24 hours, with the funds deposited into the nominated bank account the next business day.
Other types of small business funding (including those from traditional lenders such as banks) can take several days, if not weeks, to be approved, therefore delaying the required funds by some time. Not only can this cause stress for the business owner, but it can also leave them in a vulnerable position as they wait for that much-needed cash safety net.
3. Short term loans are flexible
Short term loans are also known for being a flexible business funding option, particularly as they can be customised to suit the individual borrower in many ways. This can include elements such as repayment terms, varying interest rates and repayment options.
At Lumi, for example, our short term business loans are repaid within a period of 3 – 12 months, with many customers choosing to repay the loan entirely in approximately 6 months. In fact, Lumi is one of the only direct lenders that allows small business owners to repay their loan early with no fees or penalty, serving as an example of just how flexible a short term loan truly can be.
4. Short term business loans are potentially more cost-effective in the long-run than other types of loans
Although short term business loans can carry a higher interest rate than other types of funding, their shorter repayment schedule can potentially produce a more cost-productive option in the long-run. Even if a long-term loan carries a significantly lower interest rate, it’s lengthy repayment period (which can be up to 30 years in some cases) can still add-up to be significantly higher than the total amount repaid for the short-term loan.
5. Short term loans absorb the impact of seasonal changes
It doesn’t matter what industry your small business belongs to – it’s still likely to experience seasonal changes and fluctuations at one point or another throughout the year. While these ups and downs could be minor, they also have the potential to dramatically decrease your earnings, therefore carrying the potential to sink your entire business if you don’t have access to another source of cash.
This is where a short term business loan comes in handy, as it can provide a reliable injection of cash during these times of seasonal uncertainty. Along with ensuring you have a financial back-up plan in place. Andrew Spring, Partner at Jirsch Sutherland, also explains the following:
“Business planning is key – whether you’re a startup or three or 10 years in. Doing your research and creating a business plan will ensure that you can better forecast shortfalls and opportunities and resource them appropriately.”
6. Short term loans help you manage business capital
Whether you’re just starting out or are ready to take things to the next level, you need capital to power your small business. Many small business owners don’t have the money readily accessible, however, but this is where a short term business loan can also come in handy.
There are many things you can invest in using the injection of cash that a short term loan provides, including equipment, staff wages, inventory, marketing, and other necessary day-to-day expenses. (See our full list here).
7. Short term business loans offer a safety net in times of emergency
As we mentioned earlier, it isn’t uncommon for a small business to experience seasonal fluctuations, leading to slower business and less income. There can be a time, however, when an unpredictable business emergency will occur, leaving you blindsided and potentially without the required funds to overcome the situation.
With short term loans taking just a few minutes to apply for, along with the ability to have a lending decision received within 24 hours, they can be a quick and easy way to provide you with the financial safety net you need when things turn sour. After all, you don’t want to let a bad situation ruin something you’ve worked so hard for.
Have you contemplated applying for a short term loan for your SME? What would you love to use the additional source of finance for? We’d love to hear from small business owners in the comments below.
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