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While there are plenty of financing options for small businesses available, many are turning to the quick injection of cash that a short term business loan can offer.

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.

Want a fully transparent business loan that contains no hidden charges or fees?

Get started with a Lumi loan today.

Post Author: Luiz Bevilacqua

5 Replies to “The 7 Benefits of a Short Term Loan for Your Small Business”

  1. It’s cool that you elaborate on how getting a loan can be a great way to help your small business succeed. I’d like to start my own business in a few months, so I’m thinking about getting a loan to help me do it. I’m going to search for a reputable company in my area that can help me get a business loan.

  2. I totally agree with you when you said that it does not matter what kind of business you own, they all have a risk. My friend owns a small retail business which he would like to grow but h hasn’t the money to do it. I will recommend him to think about getting a business loan so that he can invest and start growing his company.

  3. My uncle manages a landscape business and has been thinking of establishing at a regular job, due to the season is almost over. I admire you mentioning that short terms loans could benefit him through the rest of the year. It would really help him to invest in snow removal tools to maintain his business all year long.

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