Short term loan, as the name suggests, is characterized by loans that are given for a period not exceeding one year. This is the understanding of short term loan in the simplest language. Businesses use short term financing for different purposes and people also apply for short term loan, also commonly referred as unsecured loan for meeting their personal needs.
Below are some of the advantages that businesses enjoy from short term loans:
- Meeting Working Capital Needs: Whether your business is making profit or loss, you will have to bear the day to day expenses at any cost. Working capital expenses are inevitable. Especially during the initial phase of business, the revenue doesn’t start pumping in and with that it becomes very difficult to cope up with the operating expenses. This is the time when short term debt can give you some time and space to breathe and cover the expenses. It can save the life of your business by keeping it in running mode when the revenue is insufficient to satisfy the operational costs. Most businesses live on short term debts for keeping the business activities on.
- Emergency Funding: Businesses are surrounded with unknowns. You, as a businessman, can never be prepared enough to take care of any emergency situation that may arise during the course of operations. Even though ideally every business maintains contingent funds to address any unforeseen event but there can be times when the reserve funds may not be sufficient to match with the intensity of problem. In such situations, short term loans can be savior. For Instance, if the primary production machinery stops in between due to damage in the main functional part then you cannot wait till you receive your payments and then take an action as per your convenience. It will kill a lot of time and reduce productivity. With short term debt, replacement can be fast and easy.
- Expansion: Rarely, people start a business with a motive to stay where they are without any expansion and growth plans. Most businesses desire to move up in the ladder and prosper. Any expansion plans whether it is small or big needs a financial back up. By leveraging short term loan one can get access to ready cash. This will enable business owners to work on the expansion plan. The funds required may directly be related to operations like sourcing materials or new machines or it can have an indirect relation such as renting out additional office space. An out-of-cash condition can delay your growth and in corporate world every second counts and costs. So, you can kick-start your expansion immediately with the help of short term loan.
The top reasons why short term loan is the best option for instant fund requirement is as follows:
- Quick Money
- No collateral security needed
- Credit history is not emphasized too much. Only basic due diligence is conducted.
- Lesser formalities compared to long term loans.
- May enjoy flexible terms depending on the lending institute
The only way you can get out of a financial dearth is through short term loans.
May 5, 2015