Whether your business is looking to alleviate some cash flow issues, implement a new idea, or stock up for the holiday season, a short-term business loan may be just the thing you need.
Established businesses can access business loans – depending on the lender, sometimes up to $500,000 – which the business can pay off over a short-term period.
This period is generally between 6 and 24 months.
What are short-term business loans?
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A business loan can be used to help your business grow and evolve.
Short-term business loans are a great way for businesses to access extra funds when times are a bit tough, or when they need a boost to help the business grow, but don’t have access to the full amount right now.
Prospa says, “These loans can be the cash injection your business needs to meet the demands of a growing market and fully flourish.”
Some things you could use a short-term business loan for include:
Updating a shopfront, office renovations, or workshop repairs
Stocking up on supplies before peak sales periods such as Christmas
Rebranding your business (new signage, graphic design fees, etc)
Buying new equipment that isn’t eligible for equipment financing
Improving infrastructure
Inovayt Commercial Finance Broker Melbourne, Nick Ball says “Short-term business loans can be used for those businesses that might have a really good profit and loss, businesses that are growing or have cash flow issues, or to purchase something quickly.
They’re also great for filling voids where necessary.”
As for the duration of these loans, they are generally between 6 months and 3 years.
“Short-term business loans are usually unsecured, meaning they’re not secured to a house or a commercial property,” Nick says.
“They’re structured so they can be paid over a short period unsecured, so businesses without these types of assets can still access the loan.”
Because of the nature of these loans, the interest rate is generally quite high.
Depending on your lender, you may be able to borrow anywhere between $5,000 and $500,00; however, a lot of places will cap it at $250,000.
What criteria do I need to meet to be eligible for a short-term business loan?
While short-term business loans are great for businesses that need a financial boost quickly, there are a few criteria you need to meet to become eligible for one.
Although it varies based on the lender, Nick advises that some of the things lenders might look for are:
The last three tax statements to see what the revenue of the business has been
Around six months’ worth of bank statements to see what the conduct of the business is
Some draft figures
Whether it’s for something specific such as new staff members, in which case they may require contracts or something similar
How long you’ve been in business – most prefer at least 12 months or some, 2 years.
Short-term business loan lender, Banjo Loans, has their main criteria:
You must have an active ABN or ACN
You must have been in business for 2+ years
You must make $500,000+ in revenue each year
The company doesn’t usually lend to businesses in the agriculture, construction, or utility industries.
What are the pros and cons of short-term business loans?
Short-term business loans can offer great support to eligible businesses.
Let’s look at some of the pros and cons of these loans.
Pros:
The turnaround time for these types of loans is generally quite quick. Once your application has been analysed and approved, you will have the money in your account within a couple of days.
This differs from mainstream lenders where a longer loan term is required, with the application process sometimes taking between 6-8 weeks. Having this fast turnaround time can help companies immediately serve a vital business need.
“A lot of lenders now don’t have early repayment costs,” Nick says. For a business, this means if you come into a large amount of cash unexpectedly, you won’t be charged a fee for paying the loan out early.
Cons:
Often with short-term business loans, there’s an upfront fee. This means your business may be charged an added fee for taking out the loan. This will need to be paid straight away.
The interest rate for these types of loans is generally a lot higher than a mainstream lender, meaning your business will be paying more in the long run.
These facilities are priced higher due to risk, however, in most cases, the gain of funding the business needs far outweighs the cost of the facility.
It’s important to note that short-term business loans won’t help businesses out of financial trouble. If the lender can see that the business is going south, there’s a good chance they won’t lend you the money as the risk is too high.
A financial situation where this type of loan could be beneficial is if there’s a misplacement between debtor and creditor days.
Nick says, “This could be a beneficial loan in a situation, for example, where your suppliers want to be paid every 30 days but the people you do work or projects for only pay you every 60 days, therefore creating a bit of a cash flow issue.”
A short-term business loan can aid companies struggling with cash flow issues - like in the example above - that isn’t their fault.
It’s just an unfortunate situation where the two external parties are in different time frames.
Who can assist me with a short term business loan?
Short-term business loans provide a great opportunity for eligible businesses.
They provide them with a lump sum of cash upfront, with a short loan term of between 6 months to 3 years.
The quick turnaround time that isn’t present during longer-term loans allows businesses to quickly access funds for vital business purchases, whether it be equipment, putting on extra staff or upgrading your shop front.
Whatever it may be, the commercial finance broker team at Inovayt are here to help.
Reach out to us today to get started.
Looking for a short-term business loan? Our team can help!
