Short Term Finance For Small Businesses – By Erin Ryan Connolly Fast Capital 360 Senior Writer, Editor & Social Community Manager Reviewed by Elise Moores Updated May 5, 2022
Short-term business loans are funded quickly and typically have terms of 3 to 18 months. As such, they are best used to meet temporary needs and are not meant to fund long-term projects.
Short Term Finance For Small Businesses
Here are some of the top uses for short term loans shared by real small business owners, founders and managers.
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According to the Small Business Credit Survey 2022, 63% of businesses surveyed said they are looking for financing to cover operating costs.
Therefore, Branziba CEO Vlad Cristea took out a short-term loan, which Cristea says has had a positive impact on his marketing company.
“We used the money mainly to fund our day-to-day operations (such as paying for advertising, paying salaries and other bills).”
Perry Valentine, founder of AtPerry, says, “As an entrepreneur, one of the best uses of short-term financing is to increase your inventory during peak season.”
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Valentine shared that he borrowed a short-term business loan with a 6-month loan term from an online lending company. The goal? To increase stock before Christmas.
“During this time, our supplier gave us a big discount on the condition that we can buy a certain amount of product in a short period of time. As our peak season has arrived, we decided to take advantage of this opportunity and take out a loan to meet our financial needs.
“By taking this loan and maximizing the discount our suppliers offered us, we were able to significantly increase sales this past holiday season,” noted Valentine.
Co-founder Elise Bender noted, “Business was slow and sales were down because we lost a lot of customers.
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“We developed a strong marketing strategy to attract and retain our customer base,” says Bender. However, “The new campaign is on hold due to lack of funds as we are not generating significant revenue.”
In late 2021, RevenueGeeks took out a short-term business loan with a repayment term of eight months and used the money to fund its marketing campaign.
Regarding the success of the campaign, Bender shared that the company was able to attract new customers and restart sales.
Bishal Biswa, CEO of Word Finder, said during the pandemic: “The time has come for me to decide whether to pay my employees or fire them. As a small business, I can’t afford to fire them.”
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“Instead, I took out short-term business loans so that all my employees would be paid on time,” he said.
“It has had a positive impact on my company in terms of employee retention. My employees have trusted me to always be there to help them overcome difficulties and hardships. As a result, it increases their satisfaction and boosts their morale.
“Also, my employees are more committed to work because they see how I didn’t fire them despite the pandemic,” says Biswa. “This led to an increase in overall productivity and revenue for my company.”
Aviad Faruz, CEO of Faruzo, shared, “My business has been affected a lot by the pandemic. I chose a business line of credit to deal with the damage and cover the incurred costs.
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“This loan suits my situation best and one of the biggest advantages is that the interest accrues only on the portion that is approached,” notes Faruz.
“Access to capital has helped us recover from losses and provide our employees with the right equipment to adapt to working from home,” Faruz continued.
“The return on investment is seen as an improvement in productivity, resulting in low profits and employee turnover.”
Sonia Navarro, founder of Navarro Paving, said, “The pandemic really hit my business like a ton of bricks. I had a lot of financial problems and was struggling to keep my business going. Getting approved for a loan has been on my to-do list for a long time and I have recently been a great success.
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“I took out a short-term business loan to buy more furniture for my office,” says Navarro. The loan lasted for a year and I paid it off in equal monthly installments.”
“I invested money to buy office chairs, desks, file cabinets and recliners. I have a lot of staff working in the coming weeks and I just can’t leave them the right places.”
“For me, the return on investment has been great, mostly because I made the most of the furniture and bought enough for my new employee,” notes Navarro.
Kim Abrams, CEO of Abrams Roofing, took out a business loan for 8 months and used the money to expand the business and break into different niches.
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“Having access to capital allows me the flexibility I need to streamline my business processes, both internally and externally,” says Abrams.
Abrams has been able to make investments that generate consistent returns. These funds are then used to integrate cutting-edge technology into the company’s system processes.
According to the Small Business Credit Survey, business expansion or seeking new opportunities is the reason 41% of businesses seek financing.
Erin has over 15 years of experience writing, proofreading and editing website content, white papers, guides, marketing content, editorials, social content and creative content. In her role at Fast Capital 360, Erin covers topics of interest to small business owners, including sales, marketing, business management and financing. Trade credit is a business-to-business (B2B) agreement where customers can make purchases without cash upfront and pay suppliers later. Usually, trade credit companies give buyers 30, 60 or 90 days to pay, the transaction is recorded through an invoice.
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Trade credit can be thought of as a type of 0% financing that increases the assets of a business while deferring payment for a certain value of goods or services at some point and not paying interest payments associated with the repayment period.
Trade credit is an advantage for buyers. In some cases, certain buyers may be able to negotiate longer trade credit repayment terms, which provides an even greater advantage. Typically, sellers have criteria for receiving trade credit.
B2B trade credit can help businesses acquire, produce and sell goods before they have to pay for them. This allows businesses to have a revenue stream that retroactively covers the cost of goods sold. Walmart is one of the largest users of commercial credit, looking to retroactively pay for inventory sold in its stores. International business transactions also include trade credit terms. In general, when a buyer is offered trade credit, it usually always gives the business a cash flow advantage.
The number of credit granting days is determined by the credit issuing company and agreed upon by both the credit issuing company and the credit receiving company. Trade credit can also be an important way for businesses to finance short-term growth. Because trade credit is an interest-free form of credit, it is often used to encourage sales.
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Because trade credit puts suppliers at a disadvantage, many suppliers use trade credit discounts to encourage early payment. The supplier may offer a discount if the customer pays within a certain number of days before the payment date. For example, a 2% discount if payment is received within 10 days after 30 days of credit. This discount is called 2%/10 net 30 or simply 2/10 net 30.
Trade credit is considered by both the seller and the buyer. Accounting for trade credit may differ depending on whether a company uses cash or accrual accounting. Accrual accounting is required for all state-owned enterprises. Under accrual accounting, a company must recognize revenues and expenses at the time of their transaction.
Trade credit accounts can complicate accrual accounting. When a public company offers trade credit, it must recognize sales-related revenues and expenses at the time the transaction is made. With trade credit invoices, businesses don’t get immediate cash to cover expenses. Accordingly, companies must show assets as receivables in the balance sheet.
With trade credit, there is a possibility of default. Businesses that offer trade credit often also offer discounts, which means they may receive less than the balance of their accounts receivable. Both insolvency and impairment may require a write-off of receivables for non-payment or impairment. These are considered debts that the company must pay.
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In addition, trade credit is a useful option for buy-side companies. A company can acquire an asset but does not have to immediately credit cash or record an expense. In this way, trade credit can act as a 0% loan on the balance sheet.
The company’s assets grow, but the cash is not due until some time in the future, and no interest is charged during the repayment period. A company must recognize expenses only when the money is paid using the cash-out method or when the revenue is received on an accrual basis. Generally, these activities are very free
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