A short-term business loan is typically used to fill a temporary cash flow gap and is repaid in 90 to 120 days. Short-term loans are a great way for a business to meet a temporary cash flow problem. Below are a few situations where a short-term loan may be beneficial to meet a cash crunch.
1. Seasonality
Your business has seasonal or cyclical peaks that result in a gap between accounts receivable (cash coming in) and accounts payable (cash going out). If your business has seasonal swings and you need to make payments to your suppliers before you see payments coming in from your customers, then a short-term loan can help you bridge that gap without falling behind on payments to your vendors.
2. Short-term operational costs
Your company was just awarded a new project or contract from one of your largest customers. That’s great news – but in order to deliver a quality product or service, you need cash to hire new employees and/or possibly buy specific equipment, but you won’t see an increase in your cash flow for a few months. Short-term loans are a terrific solution to meet short-term operational costs that are associated with new projects that require additional staffing or new equipment.
3. Emergency situations
You are in the middle of completing a job and you have a piece of equipment that breaks down or a truck that needs a repair. Occasionally, all businesses incur unexpected expenses for one reason or another and may not have the cash flow available at the time to cover these expenses. Short-term business loans help bridge this type of temporary cash flow gap.
Factoring as a Solution for a Short-Term Business Loan
Factoring is an excellent solution for financing a business on a short-term basis. Factoring is quite simple -- a business sells its accounts receivable to a factoring company, the factoring company advances 70% to 85% of the invoice amount and the customer pays the factoring company.
At Fast A/R Funding we provide our clients short-term factoring agreements with terms as short as 60 days. We have an online application process that makes the approval process easy and quick. Once a deal is approved, our clients are able to get funds quickly to pay their expenses and stay focused on operating their businesses.
I work with many clients who have seasonal business cycles or work on large projects, so they need a short-term loan on a recurring basis rather than a one-time loan. Since we don’t require our clients to factor all of their receivables, these clients keep their factoring facility with us over a longer term and simply factor invoices when they need to bridge a cash flow gap. This provides our clients with an immediate solution when they are faced with a cash flow crunch that is either anticipated due to seasonality, or unexpected due to winning a large bid on a project or contract.
When financing a business with temporary cash flow shortages, factoring is a solution that provides flexibility while meeting the financing needs that are specific to your business. So if you find that you need funds now and know that you have funds coming in within a certain period of time, factoring is an ideal solution to meet your cash flow needs.
Fast A/R Funding specializes in helping small businesses bridge that cash flow gap. Download our informative “Factoring 101” guide, or call 888.833.2286 to speak with one of our small business finance consultants.
