Short-term loans are an important part of the financing mix and are used by businesses to grow or pursue opportunities. With quick application processes and fast turnarounds, many lenders offer attractive solutions to businesses. Here, I share the most common uses for loans that I have come across recently working with owners and finance directors from a range of industries.
Managing Cash Flow/Bridging Receivables
Many profitable companies secure funding to manage cash flow. For example, one of our manufacturing clients, which had been trading for over ten years, recently needed to bridge a late payment in order to cover day-to-day expenses such as accounts payable, salaries or office costs. Likewise, an e-commerce business we helped last month with a £150k loan was affected by seasonal fluctuations and required a loan to cover two months of slower business activity.
Using a short-term loan in these instances ensured a consistently positive bank balance and peace of mind for all involved. And once the businesses received the outstanding payment and hit the busy season, the loan was repaid quickly—and without incurring early repayment fees.
Many of our clients use a short-term loan to buy inventory or new equipment. We recently worked with a five year old printing company that needed to purchase an additional printer to meet an ever-rising number of orders. Due to the business’ consistent revenue growth over the last six months, we were able to provide a short-term loan within one working day. This enabled the company to buy the printer and fulfill all orders on time.
Some opportunities don’t knock twice. If you as a business owner fail to secure funds quickly, these windows of opportunity could pass you by and, ultimately, you could be left thinking ‘what if…?’.
Finally, some companies use a short-term loan to renovate certain parts of their business, or extend existing premises. For example, we recently provided a loan to a business owner who successfully run a quirky café and was keen to expand existing retail lines and increase the size of the gift shop. Another client of ours, a motorcycle dealership, used an £80k loan to refurbish its showroom to better showcase motorcycles, clothes and other accessories. Investments like this can provide a genuine edge for a company and increase profitability in the long-run.
Business owners from a broad range of industries find themselves facing a surprisingly common set of challenges that stand in the way of reaching their potential. Perhaps your company is not affected by any of the scenarios mentioned above, but many modern business owners I meet sometimes need financial flexibility. And that is exactly why short-term finance exists. My advice to you is to look for loans that are straightforward to apply for, easy to understand and offer flexible repayment terms.
To find out more about short-term loans, check out my recent blog post Three Steps to Wisely Finance Your Business With a Short-term Loan, which also includes expert comments from Philip Hargreaves, Head of Access to Finance at Growth Hub.
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Originally published February 28 2018 , updated February 24 2020