Business Finance Solutions

Thomas Ajava asked:

When you think of a loan, you most likely think of a longer pay back period whether it be a 30 year mortgage or five or six year car loan. In the world of business finance, 30 year loans are mostly non-existent. Instead, most business loans are for short time periods, sometimes very short indeed.

Short term business loans might be helpful for businesses which face a temporary cash crunch. A temporary cash crunch can happen for a variety of reasons. For example, you might have a small business that is seasonal in nature. You might do business only in the winter but you might have to carry out your business operations during the summer as well. Since there is no incoming cash flow in the summer, you will have to depend on a loan or other funds to get you through to the winter where your customers will start giving you cash flow my making purchases.

Short terms business loans are awarded by banks. They will however have very specific repayment terms that you will have to follow. In the example mentioned above, the bank will issue financing to you in the summer in the condition that you will pay it back when your customers give you business in the winter.

Short term business loans are also used for purchase of inventory where a business might have customers who are willing to buy from them but the business might be unable to buy inventory that will help them serve the customers. In this case too, the bank will provide a short term business loan to pay for the inventory although the bank will want back the money as soon as you are able to dispose the inventory.

Thus, if you are going to seek a short term business loan, you must have a very solid plan to pay back the funds within a very fixed time frame.

Short term business loans are unsecured loans in the sense that the bank will not need collateral to issues these loans. They will instead rely on your credit history or credit score to give you a loan based on their judgment. Any prior relationship that you have had with the bank will also come under scrutiny before a short term business loan is granted. They might also go through the cash flow statements of your past financials to make sure that the revenue you anticipate in the short future is something that will definitely happen in your case.

Short term business loans are not be confused with a line of credit. A line of credit will allow you to borrow funds and then pay it off and then borrow again. A short term loan on the other hand will give you a fixed amount that you can use for a certain purpose and then pay it back within a very specific time frame.
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