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What Are The Types Of Short Term Finance And Their Benefits

Before seeking any type of financing, it is important to see your purpose for borrowing.

You should analyze your purpose and then apply for any type of financing. Many lenders easily offer you finances, but they want to know the reason for your borrowing.

The Reason For Short Term Financing

Many people opt for short term financing as they have different reasons for borrowing. The lenders assess your borrowing criteria and then offer you the amount.

Before borrowing, it is essential for you to have a plan of your expenses. Once you have borrowed the amount, it will be easier to spend the borrowed money if you have a proper plan.

You can plan for many reasons, such as for your business growth, debt payment, managing cash flow fluctuations, or catering to the current financial crisis.

Many people borrow long term loans for their businesses. Their business has long term plans. But for long term loans, it is essential to have a good credit score. Every loan has different criteria.

For example, if you borrow Christmas loans on benefits, you may have different criteria, and similarly, for payday loans, you may have other criteria.

Short term financing is generally for short term needs or any immediate expense to cater to. If you apply for short term finance, you can get it quickly and also your repayments will also not be extended for more than a year.

Your short term financing does not include monthly payments; it includes weekly or daily payments. If you have some major and huge expenses, you can consider borrowing long term loans.

Types Of Short Term Financing

1) Small business loan

If you borrow a loan for your business, you can cater to all your short term expenses such as employees salaries, day-to-day operations etc. Most of the banks offer you short term loans, and it usually ranges between months to a year.

Apart from banks, many specialist lenders also offer you short term loans. Like any other loan, you will get the lump sum amount, and you have to make the payments slowly.

There is a specific rate of interest being charged on your amount, and you have to pay it on a regular basis.

Every bank or lender scrutinizes your applications and accordingly approves your loan amount, and clarifies the repayment terms. For a startup, it will be beneficial for you if you approach a specialist lender.

Many small business loans are expensive but are a good option if you need easy access to working capital.

2) Equipment finance

If you need some finances to buy types of equipment for your business as a business, this loan is best suitable for you. This loan helps you to buy heavy equipments for your business.

You can also keep your other pieces of equipment as collateral. This collateral clause makes the loan a secured loan and easier for the lender to rely on the borrower. With collateral involved, the loan becomes comparatively cheaper.

3) Line of credit

A line of credit is a good way to purchase whatever you need. It requires a personal guarantee to borrow this credit. In this, you only pay the rate of interest on the principal amount. You can keep a personal guarantee of your house or a car.

There is flexibility in this loan. If your business is experiencing unpredictable cash flow, the line of credit is for your business.

They can be a solution to all your business problems, and they are available to you at any point in time. Many businesses do not borrow loans as they have no source of repayment. But these loans are feasible, and you can manage their repayment easily.

4) Equity finance

Every business wants to grow, and if your business too is looking for growth opportunities, you can go for the option of equity finance. If you are borrowing equity finance, it basically means borrowing in exchange for your business ownership.

Your shares are being offered to VC’s, angel investors and outside investments in exchange for money. If you are ready to give away your ownership, you can opt for equity finance.

If you apply for equity finance, you easily get the money and get many opportunities to raise money.

But in return for the money, you have to leave some of your share in your business. This type of financing is best suited for your business if you plan to expand your business and have growth plans for the future.

5) Invoice finance

If your business is into B2B business, you can definitely go for Invoice finance. Also, if you have clients and you send invoices, this is a good option.

You can use your invoice financing as collateral in case your business has serious cash flow issues. In this case, the business requires steady cash flow.

If your business needs money and is looking out for funds, you can apply for Invoice finance. This funding is available for you even if you have a low credit score. The lender may charge a heavy fee with a low credit score, but the amount is easily available.

Conclusion

Short term financing is a good option for a business looking for growth and expansion. These loans are easy to get, and in most cases, they are available with a bad credit score.

You can easily borrow short term financing as per your business requirement. You just have to be clear with your business goals, and you can tap on the right opportunity for your business.

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