Important considerations when choosing a short term loan
Urgent need for additional funds is not exclusive to startups. Many existing businesses also get into situations where they require extra funding to seize business opportunities. If you own and manage a business, you should always consider applying for and obtaining a short-term business loan when a need for sudden additional funding arises.
The credit facility could be a helpful lifeline for any venture. It is available to businesses after successfully convincing lenders about their capacity to repay. Income flow and profitability could also comprise good assurance to lenders about a business’ ability to meet financial obligations and make payments diligently.
Before you file for a short-term business loan, there are specific factors you should initially consider. It is best if you fully understand the terms and conditions of such credit facilities. As you apply for such loans, it is assumed that you have fully understood all provisions and that you completely agree with them.
A short-term business loan may come as an unsecured loan, which does not require collateral. Because of this, lenders take higher risks in lending money. Thus, it is quite logical and reasonable for them to charge higher interest rates. Do not be surprised if you find short-term business loans to have higher interest rates compared to secured credit facilities (personal or business).
Interest rates implemented could be influenced by the amount to be borrowed and the repayment terms. Lenders also look at the creditworthiness of business owners. If you fall into the ‘risky’ category (based on your personal finances and debt patterns), you could expect to get a higher interest rate for your short-term business loan. You could always check and compare interest rates of various products and lenders. Doing a comparison shop would always be to your advantage if you are after loans with lower rates.
The loan amount
A short-term business loan is intended to be a quick solution to any financial requirement that your venture may need urgently. It usually matures within three months to a year. Thus, you should not expect to get a very high amount of loan. Most Australian lenders and financial companies provide $10,000 to $500,000 to borrowers through short-term business loans.
The lender would always assess the overall size of your business, its income, and its liquidity. It also looks at financial projections, especially if you intend to use the loan amount to fund a new project. Expect lenders to be meticulous when it comes to assessments of businesses that borrow funds. Your financial statements and projections should be impressive enough to convince the lender to approve your loan application.
Purposes for borrowing
A short-term business loan is aimed at providing necessary funding when there is an urgent need for one. Most business borrow funds to boost working capital. Your business may need the amount to repay debts, handle payables, and make up for unsettled receivables. The short-term business loan could also enable the venture to seize business opportunities like possible expansion or merger.
The loan amount could be used to fund a new product development. Your business may use it to pay tax debts or to meet other operational expenses. The loan could be used to refinance other debts with higher interest rates. Whatever the purpose could be, your business should make sure it could repay the amount before the agreed upon maturity date. It is always best if the loan would be used in activities that would bolster income flow and improve operations.
Source: Free Articles from ArticlesFactory.com
ABOUT THE AUTHOR