When Is the Best Time to Take Out a Short-Term Loan with CitrusNorth?
When your business is well-established and lucrative, you should consider expanding it. When you build your business, you may increase the number of customers you serve, the number of staff you hire, and the revenue you generate. However, growth is impossible without investment. Many company owners do not know when it is appropriate to invest in growth and when it is advisable to continue on the same route. The financial health of your business might benefit from loans with short payback periods.
The advantages and disadvantages of short-term financing are similar to those of any other kind of credit. How well you use short-term loans will affect the profitability of your business. Let’s examine the instances in which acquiring a short-term loan to aid in the growth of your business is financially prudent.
Five instances in which obtaining a short-term loan might be advantageous
1. The quantity of money utilized initially
When it is necessary to get started fast to get a provisional patent or satisfy pent-up market demand, many individuals who want to launch their businesses utilize short-term loans to cover their first expenditures. This is because provisional patents and market demand tend to increase rapidly. In most instances, a relatively minimal amount of cash is sufficient to launch a business or undertake substantial operational improvements (e.g., more considerable processing power or storage space from Amazon Cloud Computing).
2. The impact of seasonal change on accounts receivable and payments
With the support of short-term loans, retailers may find it simpler to prepare for shopping holidays such as Black Friday, Small Business Saturday, and others. For example, on Valentine’s Day, a florist must make four times the usual sales quantity to meet client demand. You may be able to use a short-term loan to take advantage of a supplier’s early payment discount while you wait for the cash from your accounts receivable to clear.
3. operating costs in the foreseeable future
If you need seasonal labor or specialized equipment to fulfill an unusually large customer request, getting short-term financing may be able to help financially. When assessing the cost of recruiting seasonal workers, it is essential to account for any possible cost-cutting initiatives, such as tax refunds, that may arise from hiring disabled veterans during winter.
4. Immediate maintenance is necessary
At any time, problems may come apparently out of nowhere. Having the required finances is crucial for handling a crisis and getting one’s life back on track as fast as possible. Regardless of whether your server goes down or your packing equipment malfunctions, you may be able to collect funds to cover your expenses in the case of an emergency.
5. Diverse disruptions in the flow of money
There are a range of causes that may contribute to a company’s cash flow difficulties. When you don’t have the cash on hand but know it will arrive within a particular time frame, short-term financing may assist you in getting over the hump and keep your business generally operating by giving you the finances you need to bridge the gap until the money comes.
An Analysis of the Advantages and Disadvantages of Short-Term Loans
When business owners are stressed about cash, they are forced to make crucial decisions about managing their cash flow. A short-term loan may be able to meet your needs without affecting your regular payments, which is preferable to using funds from other areas of expenditure, such as payroll, to pay for a large and unexpected purchase. If you are sure you will be back on your feet in a short time, a short-term loan may be your best choice.
Lines of credit are a common way for banks to issue short-term loans, and the borrower has the option of delaying repayment of the principal amount until a later date. At this time, it may be anywhere between three months and more than a year. Most short-term bank loans have variable interest rates, which generally track either the prime rate in the United States or the London Interbank Offered Rate (LIBOR).
However, there is a cost connected with the short-term nature of these loans. Typically, the interest rate on short-term loans is much greater than on long-term loans. This is because short-term loans are often required to be repaid significantly more rapidly than long-term loans. According to many finance and money management experts, using short-term loans to pay off long-term debts is not a bright idea. This includes acquiring permanent assets such as vehicles, equipment, and real estate, as well as other enterprises and their support.
Using funds from short-term loans to purchase long-term assets outright is likewise risky. This is because the payback periods for short-term loans are shorter. One of the essential fundamentals in corporate finance that should never be forgotten is that the usable life of an asset should match the term of a loan.
In addition, acquiring a high-risk company with short-term funding is unwise. Consider obtaining a written declaration of intent instead of verbally declaring your plan to make a significant transaction. This contract enables you to negotiate a better deal with your lender, stops your client from negotiating with other parties, and safeguards the rights and responsibilities of all parties involved.
A perfect short-term loan repayment plan is of the highest significance. This may relate to a range of subjects, including those listed below:
Set sufficient monthly funds to meet monthly loan payments if anticipated revenue increases do not materialize. To prepare, they studied possible buyers who might be interested in finishing items on short notice.
Find last-chance buyers for your inventory, such as suppliers who will buy back unsold products, to get rid of your list quickly and affordably so you can pay off your debt.
How to Obtain a Small Business Administration Loan Quickly
Short-term financing options include using personal lines of credit, home equity loans, and asset-based loans. However, the United States Small Business Administration provides short-term financing to many businesses (SBA).
In partnership with intermediary lenders, the Small Business Administration (SBA) arranges loans to promote the development of existing small businesses. Regarding lending and credit, each institution has its own set of criteria. Even though the government will guarantee the loan, your business must have a stable credit history.
The Small Business Administration’s microloan program is the most popular way to get a short-term loan. This program allows individuals to borrow up to $50,000; however, the average loan amount is roughly $13,000. Microloans may finance working capital, equipment or machinery, inventory or supplies, furniture or fittings, and other comparable needs.
How an SBA loan is returned is governed by factors, including the loan size, the purpose for which the funds will be used, the lender’s restrictions, and the borrower’s needs. Although interest rates are prone to change, they have typically fluctuated between 8% and 13%. Paying back an SBA microloan might take the borrower up to six years.
Before an SBA loan application can even be considered, the borrower must have completed the required education and preparation. This is intended to provide you with the information necessary to launch or develop your business successfully. Contact your area’s SBA district office for further information or a list of microloan intermediary lenders that work together.
Alternative means for acquiring short-term loans exist.
A bank must be the intermediary for credit lines, home equity loans, and Small Business Administration loans. Not all small business owners, however, have outstanding credit. For instance, it may be difficult for traditional lenders to measure transactions, including online shopping understandably. You are lucky that there are alternative ways to get cash when you need it quickly since you can use them.
Micro-companies, seasonal firms, and other organizations that do not comply with bank standards are eligible for loans through platform lenders like CitrusNorth. Other businesses operate just at certain seasons of the year. Instead of relying only on credit ratings, platform lenders like CitrusNorth leverage a vast array of firm data from dozens of business operations, such as Square, PayPal, and Etsy, to make quick decisions on working capital loans ranging from $2,000 to $100,000. These businesses’ activities include:
Regarding short-term loans, CitrusNorth may be an ideal option for businesses just starting the process of building or restoring their credit. If you apply for financing online, you may have the funds you need to take your business to the next level in less than seven minutes.
What you should understand about short-term loans
Short-term loans may be helpful when you need money quickly, whether due to a temporary financial hardship or a rapid company expansion. This is true regardless of whether the first or second situation creates the demand for money. Always do a cost-benefit analysis, and consider short-term loans in the context of your company’s other money-collecting options. When businesses seek alternatives to conventional bank loans accessible to them, platform lenders may be able to help them secure the expansion financing they need.
Krystel Shaylee Hudson
Loans Writer at Citrus North
Krystel is a Citrus North personal finance writer. She is a freelance personal finance writer located in Dallas. She is interested in writing about all kinds of personal finance issues such as mortgages, debt or student loans, auto financing, and personal loans. In the past, Krystel worked in search engine optimization (SEO) and affiliate marketing for a major home improvement business. When she’s not working on her computer, Krystel can be found working as a volunteer or trying out new coffee places.