The Ins and Outs of Short Term Business Loans
Small business owners constantly face changing and challenging market conditions, especially over the past couple of years. It’s not uncommon for small businesses to require cash quickly from time to time, possibly for purchasing stock, hiring employees, or replacing equipment. As a result, many business owners may look at applying for unsecured short term business loans.
Having access to short term business loans gives you the advantage of funding your business in times of change and growth. They allow you to keep your cash flow to pay for day-to-day business expenses, and use the loaned amount to fund additional expenses or growth opportunities.
What are short term business loans?
A short-term business loan is a set amount of money borrowed from a lender by a business that is paid back over a shorter period of time than a traditional bank loan. The repayment time frames are often 3 – 18 months however they can extend to 3 years. Examples of types of everyday personal short term loans are credit cards, bank overdrafts, small business loans or lines of credit.
What is the difference between secured and unsecured short term business loans?
Short term business loans are a type of financial loan that can actually be secured or unsecured. However, one of the most attractive components of a short term business loan is the fact that they are often offered unsecured. This means that the borrower does not have to offer any collateral to the lender in case they default the loan.
This way the lender is taking the risk, not you, the borrower. For example, when buying a house many banks ask for a percentage deposit to be paid, let’s use 20%, then the bank will lend you the other 80% of the money needed to buy the house. Having the deposit available ensures the bank that you are a good saver and based on your earnings can afford to make the repayments.
Now let’s say you want to purchase a second property for investment purposes but are unable to save up the full 20% deposit needed again to buy the second property, the bank may ask for the loan to be secured against your existing previous property. This means that if you cannot meet the repayments on the second property the bank has the right to sell your other property to repay the money that you borrowed.
A secured business loan operates in the same way, a lender could ask for your loan to be wagered against your personal property, warehouse, office building, or even an expensive piece of machinery that belongs to your business. The lender has the ability to sell any of the collateral you used if you default on your loan. This can be very risky for a small business that relies on the equipment, warehouse or property to run their business effectively. Therefore an unsecured loan option could be the better option.
What can a business fund with unsecured short term business loans?
Unsecured short term business loans are an excellent way to fund several expenses in the short term. The great thing is business owners can use the funds at their own discretion.
Common things that are funded by a short term business loan include:
Expansion: Any sudden opportunities that arise to grow the business. For example the need to improve your website to increase brand awareness.
Wages: In times of low cash flow, or in growth such as when a large construction project is taken on, a short term loan could be used to cover staffing costs.
Purchasing of equipment: When an expensive piece of machinery breaks down or stops working altogether and new equipment is needed to keep the business flowing.
Relocation or Renovation: From time to time a business may need to renovate or relocate to service their clients better.
Marketing Investment: Marketing campaigns can be expensive, although when done well they generally produce great results. A short term loan can be a good solution to pay for marketing costs.
What are the benefits of short term business loans?
A Short term business loan offers several advantages to the borrower. We have included the benefits into a list to help you understand how it can potentially be beneficial for your business.
Faster application process. Because loan amounts are smaller and there is no collateral being assessed to borrow the loan against, the application process is faster. This allows for quicker access to funds in times when a quick cash injection is needed to fund your business. This could be to cover wages in the short term, buy new equipment/machinery, acquire new office space, or take advantage of any other sudden opportunities that arise to expand the business. Lumi.com.au, for example, offers a very quick and easy online business loan application process for short term loans.
Same day funding. Because many lenders have now structured their loans to meet the needs of modern-day business owners, faster processes are in place to allow for the funds to be available on the same business day the loan is applied for.
Flexible repayment periods. Short term business loans are often known to be flexible with the repayment periods and can be tailored to meet the borrower. This could come down to variable interest rates and options to pay the loans off faster.
Excellent choice for emergency funding. Because of the quick turnaround of applications and the ease of obtaining a short term loan, they are an excellent option for the borrower.
Can be more cost-effective than traditional loans. Because of the flexibility of the repayments, the borrower has the ability to pay off the loan sooner. This means the borrower can end up paying less in interest even if starting with a higher interest rate. A short term loan can be taken for a period of up to 3 years. However, if the borrower can pay off the loan within 1 year they forgo paying that extra interest they would have paid by holding the loan for a further two more years.
Transparent and easy to be in control. Lumi.com.au offers transparent loans, no guesswork, no reading between the lines.
Lumi.com.au is a leading Australian online business lender offering flexible short-term small business loans. You can apply for an unsecured short term business loan up to $150,000 AUD, within 5 minutes online, and get an application outcome within a few hours. The funds can be in your account on the same business day. Apply online at lumi.com.au today!