How Do You Know You Need A Short-Term Loan?

There are various of reasons why a business would need to borrow money. Whether it be cash flow problems or product expansion, sometimes you just don’t have another option but to seek a third-party’s help. But just as there are multiple reasons to need a loan, there are various options which are unique and suit different business needs. For this reason, it is important to investigate the reason why you need the money and which borrowing option is best.

An attractive option is the short-term business loan such as the one from https://www.merchantmoney.co.uk/small-business-loans/short-term-business-loans/. Although they are similar to traditional loans, many alternative lenders are also now offering these loans for small businesses looking for some quick cash to pay back over a shorter period. There is of course interest that needs to be repaid, but the amounts are lot smaller and taken out over a period of less than a year.

Due to the above-mentioned factors, it makes sense that short-term loans are easier to acquire than long-term business loans. These days there are more lenders available than just the big national banks for short term business loans, meaning that the requirements are far less rigorous.

When to use a short-term loan:

Not all business problems are going to be solved by a short-term loan, however knowing when getting one is the appropriate option for your business is important. This will help you avoid getting you and your business into unnecessary trouble and save plenty of headaches. So, to help you out, here are some reasons that you may want to seek out short-term loans over other types of loans.

  • Cash flow problems

Particularly applying to new businesses and businesses with an uneven sales structure, short-term loans are perfect for solving cash flow shortages. If you find yourself in a situation where you are waiting to receive a big client invoice and don’t have the cash to pay off your overheads, then this type of loan could be a good option for you. It will help you avoid building up debt on your credit card while waiting for the payment to come in.

  • Seasonal trends

When it comes to seasonal holidays, there’s no doubt that customers’ demand increases and as a business, you are expected to meet their expectations. This often results in extra stock being required which is easy enough to say, but often needs a massive outlay in cash, which many small businesses can’t always afford. A short-term loan will provide the cash needed to purchase the necessary extra inventory as well as any extra staff wages which incur in the busy holiday seasons.

  • Emergencies

No matter how successful you are or how brilliant your company insurance is, there comes a time when certain situations arise which are out of your control and leave you unprepared. Short-terms are an option to help you out when your computers crash or a natural disaster hits and affects your business. They have a short turn-around time, and you can get your hands on the needed cash very quickly.

  • Higher interest rates

When the economy of a country is in a healthy condition, short-term loans tend to have higher interest rates than longer-term options. The rates are calculated based on the prime interest rate, and then a premium is added to it. However, when the economy goes into a recession the interest rate on short-term loans tends to drop, and borrowers of long-term loans may end up paying more interest in total.

If you decide to go ahead with a short-term loan or research other lending types, make sure to select the right option for your business goals.