Short-term financing became a great financing alternative for small business owners and borrowers in 2008. During the lowest points of the economic decline, short-term financing allowed borrowers to secure the financing they needed much quicker than if they applied for traditional lending options. Today, many financial institutions offer short-term financing solutions and while they can be amazing financial tools, it is important to understand the basics before making any financial decisions.
What is Short-Term Financing?
Short-term financing is essentially any financial solution that has a repayment term of fewer than 5 years. In some cases, the repayment terms can even range between 6 and 18 months. Because the repayment terms are shorter, the payments are higher and the overall cost of the loan or financing product tends to be higher as well.
What are the Advantages?
The biggest advantage, and most sought-after benefit, is that it’s fast. Applications are online and decisions are made in under 48 hours, if not the same day, with funding then being dispersed in an equally fast fashion. To qualify for financing most lenders only require your credit score, income, and proof of company cash flow.
Because borrowers with an excellent credit history, money for a down payment, and various income streams will qualify for traditional loans at a much better rate, lenders offering short-term financing focus on young businesses and individuals with less than perfect credit, or no credit. This allows small businesses to gain capital and build business credit while they’re still young and growing which will play a key role in financing large projects in the future.
What are the Disadvantages?
Short-term financing is expensive. Instead of interest rates, lenders assess fees and overall costs based on factor ratings. Factor rates are assigned based on the borrower’s risk level and because it is not interesting, there is added no benefit to repaying earlier as the overall cost of the loan will not change. Also, unlike traditional loans that have monthly repayment structures, short-term financing products often have weekly or daily repayment schedules.
Short-term financing provides capital quickly and can successfully be used to improve cash flow and to fund new business opportunities and expansions. With many products, services, and options available, we are confident that short-term financing can get your business moving in the right direction. Contact BT84 Commercial Capital and Business Solutions for more information on how to get started.