There are several financial advantages of short-term loans for small businesses, but the operational advantages short-term loans provide small businesses are dramatic, especially in a slow economy. Good rates, no collateral requirement, fast turnaround, varied lenders and reduced credit requirements make short term loans financially attractive. What the money can do for a small business is where the true value lies. It is unwise for any business that is not profitable to consider a short term loan.
Accounts Receivable Relief
In a slow economy even the best customer may slip from 30 days to 45 days before paying. Short-term loans help small businesses stay afloat until the money comes in without hassling customers for payment. Since the loan term is short there is less interest making the loan a sound financial decision. For some small businesses being able to give 30, 60 and 90 days same as cash helps make sales and the short-term loan relieves the cash flow problem.
No Missed Opportunity
Many times small business must invest in their future by purchasing goods and services far in advance of when the sales and profits come in. Short-term loans can mean the difference between seizing opportunity and missing opportunity. Seasonal businesses especially can benefit from from the quick turnaround on short term loans. Any small business that relies on products shipped from overseas knows the time it takes until they can be sold and turned into profit and a short term loan bridges the gap.
Small businesses like massage therapy franchises or nail salons or any business that needs space to accommodate customers can benefit from expansion. The more space the more customers and profit. Short-term loans can pay for expansion costs like equipment, renovation and additions. Expansion that brings in more business, especially when funded by a short-term loan, is a good return on investment.
Preparation for Permanent Long-Term Loans
Small businesses can improve their credit and prove their capability to handle permanent financing when they successfully repay a short term loan. Sometimes new small businesses hurt themselves by taking on somewhat unfavorable long term loans that carry with them higher rates. Some small businesses avoid the need for permanent financing by strategically using short term loans to their advantage.
Since banks and other types of finance companies provide short term loans for small businesses it is advisable to shop around and maximize the advantages that the short-term loan offers.