Aren’t there a lot of ways for people to borrow money these days? You can find unsecured loans, secured loans, long-term loans, payday loans and much more. One of the most popular forms of loans is the short-term loans, particularly among the small business owners. This type of loan is designed in the way of cash flow infusions to meet financing needs right away. This loan type can be considered as a versatile financial tool as a means of dealing with u nforeseen needs for added cash or to take advantage of a business opportunity.
They are a great option to take for some business owners, but they don’t make sense with the others. Here is a list of reasons that will help you decide whether or not short-term loans are for you.
You should take it if you are a business owner.
Seasonal businesses come at some point in their operation wherein there are great fluctuations in their business especially when it comes to income. However, these changes are very predictable. If you have been running your business for a couple of years, you already have a likely ability to forecast the earnings during the busy season at a great accuracy.
When you feel that you need funds to prepare for such a season and t hat you feel confident that you will be able to make the payments back once things are picking up, then getting a short-term loan is not a problem for you.
You should take one if your small business takes in high volume.
What this means is that the nature of the high-volume business that you get to keep pace with the repayment structure of the short-term loan. This type of loan is the perfect for you whenever you have an unforeseen big-ticket item or that you need to take advantage of an unexpected business opportunity.
You should take it if you have small credit
When it comes to traditional bank loans and the other forms of lending, it requires a robust credit score, however, with short-term investments it can be an option for the ones that have low credit score, even as low as 550. This is because the short-term loans are repaid typically within the span of 3 to 18 months. Lenders foresee this less risky at default and are more likely to take on the borrowers that they see as riskier.
You should take it if you have the earnings history
Since short-term loans are made based on the projected cash flow, your business requires gaining the earnings history to get qualified for the short-term loan. Lenders consider the earnings of the previous year to estimate your business’ revenue for this year. If it is your business’ first year, the lenders will be a bit hesitant in approving or even offering the short term loan for you. This is because there is no way for them to prove that you will have a n income to repay your loan.