Choosing the best short-term loan

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Start-ups and small businesses with minimal collateral and little or no credit history often struggle to access small business loans. They resort to short term loans as a viable option to fill their financial deficits.

Even if you do your best to anticipate all possible expenses when starting a business, you can still find yourself caught off guard with unforeseen costs. Whether it’s a production machine breakdown or an unusual late payment from a reliable customer, you will be in dire need of funds.

Short term loans can save lives despite the risk of having a short repayment period and being very expensive.

What is a short term loan?

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This is the type of loan that a person or business gets to deal with temporary cash flow shortages. It is characterized by repayments that can range from a few weeks to six months or a year. Start-ups that may not be eligible for small business loans from traditional lenders find it a feasible alternative.

These loans range from as low as $ 100 to $ 100,000, offering much lower amounts than conventional small business loans. However, they are withdrawn much faster, sometimes within 24 hours of approval. This helps to sort out sudden cash flow tensions.

Benefits of getting a short term loan

A start-up can benefit from this in several ways.

1. Relaxation of eligibility conditions for loans

Many start-ups and small businesses have less than impressive credit scores, making it difficult to access long-term loans. Short term loans have lenient requirements that allow these companies to access credit.

2. Fast financing time

A shorter repayment period means less risk for the lender. These loans are approved and paid to applicants sometimes during the day.

3. Short repayment period to incur interest

Since the funds are repayable within a year, you will likely pay less total interest. Long term loans and other small business plans have a huge interest component given the longer repayment period.

4. Increase your credit score

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By repaying these loans on time, you can increase your credit score. This track record enables your business to apply for larger business loans for large capital expenditures in the future.

The best type of these loans for your business

1. Online loans

Several fintech companies offer online loans that are approved automatically using digital algorithms. The approval and transfer of funds to your account happens almost instantly.

2. Cash advances from the merchant

This is a short-term loan from a lender who advances a lump sum to a start-up. The loan is repaid by collecting a percentage of future credit card sales when customers make purchases at the borrower’s store.

3. Funding of invoices

As a business owner, you can use your unpaid bills to get short term loans from lenders. The lender will charge your principal plus interest when your customer pays. Then they will return the balance to you. You will receive funding while you wait for customer payments.

4. Payday loans

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Business owners who are still earning a salary can access emergency loans in the hope of paying off the loan on payday. The full amount is refunded when the salary reaches the account.

5. Lines of credit

The business can access an overdraft limit payable in monthly installments. Monthly payments vary depending on the amount the business uses on the line of credit. They are cheaper compared to business credit cards.

6. Customer advances

This applies when customers make reservations by paying for a service in advance, which gives you access to cash flow for services you have not yet rendered. Think about hotels or show tickets purchased in advance.

7. Sell items in installments

You sell an item to a customer who pays for it in installments. Your customer makes installment payments and collects the item after payments are complete. While not strictly a loan, it is a financing option that allows the business owner to quickly access funds.

Conclusion

Short term loans can be the lifeline for start-ups that may be eligible for conventional loans. These loans are easy to access and have a speed of execution which makes them particularly attractive. Look for the best short term loans to keep your business afloat.

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