The Pros and Cons of Short Term Financing


pros and cons of short term financing

Is your small business going through a tight period? This is not uncommon, but it could hinder your plans to grow your business. So, what do you do? You can consider short term financing. It can be an invaluable tool when you need cash flow to get your business through difficult times until you can get additional resources. While the advantages of short term financing, often outweigh the disadvantages, it is a good idea to have a complete understanding about the pros and cons of short term financing and what you become liable for so that you can avoid damaging your situation further.

Here is a look at some of the pros and cons of short term financing.

 

Pros:

Quick Funds in Times of Need

One of the biggest advantages you get with short term financing is that upon approval, you will often receive the funds you need quickly – in most cases, within a week.

For example, if you need to buy new stock or pay outstanding bills quickly, short term finance will help you in immediately meeting your cash requirements.

 

Bad Credit is Not an Issue

Short term financing is available even to business owners with bad credit. When you apply for loans from banks and other financial institutions, they will review your credit report before approving your request.

If your report does not meet their standards, you will be deemed high-risk and your request will be denied.

Short term financers, on the other hand, are lenient on your credit report and will analyze asset values and other avenues to assess your loan.

 

Repayment Flexibility

Another major advantage of opting for short term financing is that you get a wide range of options to repay the loan.

For instance, you can apply for a 6-month loan or 3-month loan, depending on your convenience. You do not get this repayment flexibility when you apply for loans with banks.

 

Cons:

High Interest Rates

With short term financing, one of the biggest limitations is that it generally comes with a higher interest rate than with long term loans.

However, in most cases, short term financing is only an interim measure to refinance some businesses so that they can apply for a more traditional long-term loan.

 

More Frequent Payments

Borrowers of long term loans typically make monthly payments. With short term financing, you may be required to make weekly or even daily payments.

Rapid-fire payments like these can be a challenge if your cash flow fluctuates. If your business goes through a slow couple of weeks, you could be left at risk of default or saddled with penalties.

 

Short term financing is not always the right solution for every business that requires quick cash. This is why it is important to consider the pros and cons of short term financing before making a decision. However, if your small business requires fast cash to tide you over during a temporary slump or take advantage of a once-in-a-lifetime opportunity for your business, it is good to know that short term financing is available to provide you with fast, accessible money.

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