Are short term business loans the best solutions for getting through a cash flow crisis? - https://www.bowraven.com/short-term-business-loans/
Borrowing from banks is not always the best solution for bridging cash flow gaps – Increasing profits is an alternative…and works.
What are the advantages of short term business loans?
Flexibility - Flexible short term finance plugs the gaps in small business working capital requirements.
Speed of lending - It is possible to obtain short-term finance faster than it is to arrange for long term debt. However, this is only really applicable where the borrowing requirement is small.
What are the disadvantages of short term business loans?
Cost of borrowing – short term business loans tend to be more expensive than long term loans. There are the interest charges and the lending fees too.
Lending withdrawal – banks have a tendency to withdraw loans at short notice. This could cause major problems for a business, especially if an alternative cannot be found.
The short term funding needs turns to a long term cash flow crisis – If a short term loan has been used, but the cash flow situation that necessitated the borrowing turns to a long-term problem, this becomes another situation to solve.
Personal guarantees pose a risk – most bank lending requires a personal guarantee. This is a risk, as if the business fails, the bank will call-in their loan and you could lose your personal assets, including your home.
Types of short term business loans – these include overdrafts, credit cards and short term bridge loans. The most common type of short term business loans is the overdraft facility. This is because you only pay interest on the facility when it’s being used.
However, the fees and interest on an overdraft can be high.
What are the alternatives to short term business loans?
The best alternative to a short term business loan is to increase sales and profits.
Target your average transaction value to grow your business instead of borrowing your way out of the situation.
The advantages of this alternative to short term business loans for small businesses are:
Lending fees and interest will be saved - If you target your key profit drivers, you will no longer require a short term business loan. You therefore save the fees and interest on the loan.
No credit check is required - If you don’t borrow sing short term business finance, you don’t need a credit check.
Bad credit problems disappear - If you have bad credit, then borrowing will prove to be a challenge. However, if you are no longer borrowing, but instead focusing of increasing sales and profits bad credit problems are no longer a problem.
No lending security - As you are no longer borrowing, the need for security for the loan is no longer required.
Personal guarantee risks disappear - If you are targeting your business KPI’s you no longer need to give a personal guarantee anymore, so this risk is also removed.
The long term advantages to your business health - As you are focusing on the growth of your business, it will become stronger, more profitable and in the long term will be more valuable too.
Low cost of implementation - The costs associated with implementing changes to improve the likes of your average transaction value are normally very low. This is compared to expensive short term borrowing costs and interest rates.
Also, if you are reading this article because you are looking for short term finance for your business, I recommend you take a look at our Increase Profit Software solution. From a minimal investment, you will have a much more valuable and more stable business. https://www.bowraven.com/product/increase-profit-software/