Short-Term Financing For Small Businesses

Small businesses usually use the combination of short-term and long-term financing. Short-term finance is one of the most suitable ways of financing funds for the working capital, taxes, for the purpose of marketing, inventory and even in emergencies. The expenses for equipment can be funded either by short-term or long-term financing.

The businesses can use short-term financing in the form of accounts receivable financing which is also called factoring finance. When you opt for factoring as a means of finance you should be prepared with all the documents and the accounts of the company. The factoring company would bother more about the payment practices of your customers as compared to yours and hence you are required to be prepared with the financial statements, a certificate of incorporation, or a partnership agreement, an accounts receivable aging report, the proof of insurance and the invoices and the various required business documents. Since the company takes the responsibility of collecting your receivables they would want to assure themselves that your customers make their payments on time.

Once that the factor and you reach a conclusion as to which factor does he want to buy then the factor would give you an advance for example it might pay you an amount as much as 80% of the amount of the invoices and once the customers pay their invoices the remaining 20% would be reimbursed. But the factor would deduct the fees from the amount that is reimbursed later. The fees of the factors would vary and it would depend on the size of the invoices, the credit worthiness of the customers and the days in your collection cycle. Typically you should be ready to pay an amount as much as 3-7% of the total invoices that the factor collects.

Besides this the small business can also use the unsecured loans that are given out for short-terms. But the unsecured business loans should be taken into consideration only if a small amount is taken that can be paid back in ascertained period of time. With the help of unsecured business loans you can also finance the debt consolidation, making business improvements, getting things for purchasing the business etc. The borrower can enjoy a number of

benefits with the help unsecured loans. The unsecured loans are easily approved and have some good terms and conditions. With unsecured small business loans the borrower does not have to undergo the risk of losing his property. However with an unsecured loan you are required to pay higher interest rates as compared to the secured loans.

When taking an unsecured small business loan your credit score plays an important role. The lender pays more importance on your credit score. The better the credit score the more are the chances of getting the loan at a lower interest rate. The credit score of the person gives his payment history and the amount of debts that he is still supposed to pay. With the help of an unsecured loan you can borrow against his financial stability.

The small business can also use credit cards for financing their short-term needs. Business credit cards usually do not have a limitation to the amount that they can spend. Besides this the interest rates on the business credit cards are comparatively lower. The credit card providers at times would also provide a 0% interest rate on the credit card for the introductory offer. The business credit cards come with some other advantages also like coverage for vehicle rentals. Free frequent flier miles, emergency cash disbursements etc.

With the help of these business cards you can keep a track of all the business deals and the amount that you are spending. Once that you have your business card you are required to be very careful about the use of this card. There are a number of companies that would provide additional benefits with the business credit card like they would provide credit cards to all the employees of the firm at reduced rates but most of the times these cards would have a limitation for spending. Every time that you use the business credit card you earn some points and these points can be further used for getting rewards and special benefits.

Besides these options there are a number of lenders that would specifically give out short-term small business loans. These loans have a maturation period of 90-120 days or can also be paid back in 3 years. The banks usually require specific repayment plans with short-term loans. These loans are made available to both existing as well as new businesses. When giving out loans to businesses most of the lenders give out short-term loans because these loans are less risky. Before a lender gives out a short-term loan he would review your credit history and the previous payment record. There is no need of a collateral to secure the short-term loans and the banks usually rely on the personal credit history and the credit score for giving the approval. The short-term loans would have a higher interest rate but the interest rates are fixed for the entire term of the loan and hence your monthly payments are fixed.

People usually confuse the short-term loans with the small business line of credit. But with a short-term loan you would get a lump sum amount of money at a fixed interest rate and once you pay back the amount you cannot borrow against the same account again. A short-term loan can be beneficial for people who have to fund the working capital and other minor expenses in their business.