Facts about Short Term Financing

Facts about Short Term FinancingShort-term financing is a broad term that applies to a wide range of loan products. These products are usually subject to terms of no more than one year. Many short-term loans, however, attract terms of no more than 120 days. Whether you are looking for a short-term loan for personal use or for financing your business, here are some of the key facts to know.

Short-term loans for businesses

Short-term loans can be used by businesses to cover capital and expansion, cash-flow shortages, or working-capital requirements. A businesses that has a short-term cash flow constraint because of slow-paying customers or unexpected overheads can use short-term loans to continue operating without disruptions, pay its tax debts and pay for necessary purchases.

Other types of businesses such as start-ups and cyclical businesses will also find short-term financing invaluable in certain situations. Start-up companies, for example, can supplement their working capital and boost cash flow with short-term loans, especially when they are still building sales or a stable client base.

Cyclical businesses such as retail stores may rely on short-term financing during certain periods of the year. For example, an ice cream store can use a cash-flow injection during the winter months to reduce cash constraints on operations. Toy stores use short-term financing to build up their inventory during the Christmas and New Year periods as consumers start demanding more choice and volume.

For individuals

Individuals can also take advantage of short-term financing for a range of purposes. Expenses such as a new car or home renovations can be partially or wholly funded with a short-term loan. If you are changing homes, you can using a bridging loan for the time gap between buying a new home and selling the old house.

In emergency situations such as unexpected unemployment, short-term loans can ensure that you pay your bills and meet your other financial obligations such as mortgage or rent payments.

Interest rates

Interest rates for short-term loans tend to be higher than the interest charged on longer term loans. However, in a downturn a short-term loan can attract a lower interest rate than a long-term loan.

Interest rates will vary from lender to lender, and your circumstances as an individual or business owner will also impact the interest rate charged, as the lender will ascertain your risk profile from your situation.

Types of short-term financing

The loan may be secured or unsecured, depending on the type of financing. For individuals there are bridging loans, which are designed to help homeowners buy a property quickly before they have had time to find the right buyer for their old home. Smaller loans such as cash advances and payday loans are some of the other types of short-term financing available to individuals.

For businesses, there are lines of credit, low-documentation loans, overdrafts, and other types of short-term loans. These can be used to finance capital purchases, cover monthly overheads or pay staff wages until the business’ cash flow situation improves.

Finding a lender

Businesses and individuals seeking short-term financing usually need access to funds sooner rather than later, so finding the right lender is vital. A good lender specialising in short-term financing will be able to process your application quickly and give you access to the funds without excessive hassle or paper work. Generally, you will need to provide some paperwork, evidence of financial history and evidence that you can make the repayments.