No matter how you run your company, uncertainties will occur. It’s either your system stops working suddenly, or a crucial piece of equipment breaks down. You might also have to contend with insufficient funds to kickstart a vital project. Whatever the challenge is, what makes a great company is its plan for contingencies.
Planning for risks and uncertainties of the future isn’t only about regulation and control. Most of the time, you’ll need some money to put measures in place. In times like these, you turn to short-term business funding to keep your projects afloat. But before you get a loan, you should know the following:
What Is Short-Term Funding?
Short-term funding contains a variety of loans and financing options that businesses can leverage. Being short-term, they’re usually paid off within a few months. Such loans are merchant cash advance, invoice financing, and business credit. Another example is bridging loans which you can use to fund several projects aside from real estate. Check here to see its uses and benefits.
Although small business owners often resort to short-term funding due to the scale of their operations and team, large companies can also claim the financing option. Besides, short-term loans don’t usually require any form of collateral. Due to their relaxed requirements, they’re fast and easy to use.
What To Know About Short-Term Funding
Short-term funding is often misconceived. Therefore, it’s always best if you’re accustomed to some of the concepts, tips, and strategies. Below are eight things you should know about short-term business loans before consulting an agent:
- Repayment Is Short
One of the things you should know about short-term funding is that it requires early repayment. Unlike long-term financing, which can take months to years, short-term funding takes a few days and months. Usually, the loans mature between 90 to 120 days.
- Interest Is Low
With early maturity comes low-interest rates. Under normal circumstances, the earlier you pay off your debts, the more interest benefits you get. During a recession, your short-term interest may be higher than your long-term interest. Therefore, as a business owner, you should always confirm the prime interest rate before getting a loan.
- Requires Documentation
Contrary to opinions, short-term loans require documents. People believe that because it doesn’t involve a bank, then there’s no documentation. That’s not true. You’ll at least need to present a payment record or a business account. In some cases, you’ll have to show cash flow history and income statements. However, the documentation depends on the agent you’re dealing with.
- Payout Is Swift and Easy
Once you’ve completed the documentation, you’ll get your money within minutes. Some agents transfer the funds directly to your provided account details, while others keep them on their app for you to withdraw. Therefore, it’s swift and easy to use. But in some cases, the payout may take hours or days.
- Requires Credit History
Just because short-term loans don’t involve a bank doesn’t mean they won’t consider your credit history. Your history would be checked for eligibility. If you have a poor credit score, you won’t be granted a loan. So, you should always check and improve your score. One way you can do that is through swift bill payments and review of credit reports.
- You Can Compare Interests
Resorting to short-term funding for your business doesn’t mean you should focus on an agent. You can compare interests and see the agency with the most interest benefits. The loan market is competitive; therefore, you have several options to choose from. The options and flexibility are primary reasons short-term loans are unique.
- You Can Build Your Credit Profile
On the flip side, you can use short-term funding to build your business credit profile. In that case, your short-term loans serve as a tool for long-term project financing. As long as you make timely payments, you can use the loans to build your credit profile which can prove valuable to the operations and continuity of your business in the long run.
- Origination Fees Are Subjective
An origination fee is money that an agent charges as compensation for processing your business loans. It’s a separate fee from the interest rate, usually between 0.5% and 1% of the principal loan amounts. However, these fees aren’t absolute. Instead, they’re subjective as not every agent considers it necessary. So, before you consult agencies for short-term business loans, learn about their origination fees.
As long as you run a business, uncertainties will always come up. How you handle them informs your business growth and continuity. One option you can use is short-term business funding. But before you consult an agent, you should know what it entails.