Understanding Short Term Business Loans

finance

A big part of being successful in business is the ability to quickly get access to short term loans. Particularly in the early stages when you might not have the cashflow to meet your business needs, you might need some short-term assistance with bridging a gap until a client settles an invoice or to procure stock for sale. Short-term business loans are popular in these cases as you can settle them quickly, which means they aren’t attracting long term interest and commitment.

There are a few different options that you have for short-term business loans. 

Merchant Cash Advances

While this isn’t strictly a loan, it can often end up filling in the space where you might otherwise have needed a loan. A merchant cash advance is when a lender will buy your future credit card sales. You can see then why this might take on the same purpose as a loan.

You repay these loans through your point of sales device by allowing the lender to take a percentage of each credit card transaction you make towards repaying your loan. It’s a versatile and flexible way to get access to credit as you aren’t generally locked into a specific payment plan, but rather each day you process credit card payments, you’re slowly repaying your loan.

Lines of Credit

The easiest way to think of a business line of credit loan is that it works very much like a credit card. You’ll apply for a line of credit, and the lender will give you a credit limit. You can use this credit limit to access cash whenever you need it, and then repay whatever amounts you use gradually over time. 

It’s popular because of its flexibility, and it often ends up being cheaper than a business credit card, particularly if it’s cash you need as credit cards attract quite high cash advance fees.

Invoice Financing

A very specific, but also very useful, form of short-term business loan is invoice financing. As the name suggests, this loan involves your lender giving you an advance on outstanding invoice amounts. Once your customer pays that invoice, the lender will take their advance back, less the interest amount accumulated on that advance, and return the balance to you.

In essence, the invoice is being used as collateral against a loan; it is easy to get approval and it’s quite cost effective.

Short-Term Loans

A short-term loan is the most classic type of short term business loans. You’ll apply to a lender for a lump sum of cash, for which the lender will offer you a payment plan and interest percentage. If the terms are agreeable, the lender will pay you the agreed sum, and you will repay the loan on a regular schedule, including interest and fees. These loans are available over short terms, with very flexible repayment schedules – even weekly or daily payments.

While these four loan types are perhaps the most common, they’re not the only loans available to businesses. Understanding how to finance your business through equity and loans is imperative knowledge to have as a small business owner.

Where to Get Funding for Small Women Businesses

Business identityDespite the need for skills and determination to start a small business, there is a need for money. Competitive business environment makes it harder. Women being the fair gender face more challenges due to market constraints. Such constraints include limited access to information and bias.

In the U.S women own 39% of all companies. Although the numbers seem good there is the need for improvement towards reducing the gap between male and female-owned businesses.

Five best sources of loans for small women businesses

  • Local female-centered group loans within your region – women-owned businesses have overwhelming support from many states. Information such as cash flow projections, income tax, credit authorization, and financial statements are required. Though the loans might be small depending on location, the most significant advantage is adequate time to pay back.
  • Peer-to-peer business loans. Lending club is among the platforms of peer to peer lending. The lenders act as a connection between investors and clients in need of money. This form of loans has no restrictions regarding spending. The loans have no restrictions on use and are offered in flexible terms. The business though has to meet some revenue score to acquire the loans.
  • Small business administration loans. The loans have meager interest rates and are offered to small businesses whose credit score can’t qualify for other investments. These loans require collateral and a healthy business plan. The most significant disadvantage is the time needed to secure the loan as well as the difficulty in acquiring it.
  • Traditional banking institutions loans. These include banks and insurance agencies. Loans from these institutions have a constant interest rate. Research has shown that banks usually process long for businesses to reduce the motivation for small businesses likely to fail. For this kind of loan, the company must provide collateral such as building, land or vehicles.

The above discussed are the most accessible and reliable channels for women loans to start a business. Other channels include bootstrapping, invoice factoring and selling business equity to potential investors. This help women businesses which don’t have enough revenue or collaterals to secure loans from banks.

Why is it hard for small women businesses to get loans?

  • Small community finance institutions have vanished. More prominent institutions have submerged the smaller community banks. These big banks are not willing to give small loans to these women businesses due to high risks. This hinders the growth of potential companies owned by women.
  • Modern business is more of service provision oriented. These businesses lack the criteria such as collaterals required by banks to give loans.
  • Venture capital is only concerned with companies with relatively high potential to grow.

Women being minority groups face a more significant challenge in acquiring financial support for businesses. The founder of CCVRS, INC., Craig Lambert ascertains that a company can only be successful if there is some risk involved. There is a need to reduce gender biases to secure women loans to start a business venture.