In business, cash is the fuel that keeps your engines running. Without enough cash, your business comes to a screeching halt. Cash is what allows you to purchase materials and pay employees. It’s what lets you fulfill orders and grow your business. You are dead in the water without it.

The timing of cash is often difficult to manage. You know you are going to make sales. You know you are going to fulfill orders and ship product. You know you are going to invoice customers, but do you know when those invoices are going to be paid? Even if your top customer consistently pays in 30 days, what happens if they pay two weeks late? How much of an impact would that have on your business? Would you be able to meet payroll?

Short-term business loans make the difference between a business that is living paycheck to paycheck and one that is thriving and successful. Having that small cash buffer in place makes all the difference when an unexpected event happens.

Using A Term Loan To Cover Your Expenses
The first type of short-term business loan is a straight-term loan. You provide collateral to the lender and the lender loans you a lump sum of cash based on the value of that asset. The collateral is usually a fixed asset such as equipment or real estate.

This type of cash flow financing is convenient because of how simple and straightforward it is. You get a small pile of cash up front and use it as you see fit; however, there are some disadvantages as well.

The biggest issue is that you get all of the cash up front. Unless you have an immediate need for all of the cash, you’ll be paying interest on money that is just sitting in your bank account. The other big problem is that you’ll have a balloon payment at the end of the term. You’ll either have to stock away cash to pay the loan off or you’ll have to refinance it -- which may or may not be an option a year or two down the road.

Using Accounts Receivable Financing To Cover Your Expenses
The other broad category of short-term business loans is accounts receivable financing. This type of financing uses your accounts receivable as collateral. You receive funding based on the value of the accounts receivable you have outstanding. The loan is then repaid when those invoices are paid.

This type of financing is specifically designed to improve cash flow. You are able to turn your receivables into cash before they are paid. Rather than waiting 30 or 60 days for payment, you get cash immediately upon invoicing.

This is great because it gives you cash in the same way that a term loan does, but you’re not paying interest on money that’s just sitting in the bank. You have much more control. Request funds when you need them and, thus, only pay interest on the funds you actually need.

Unlike other short-term business loans, accounts receivable financing easily grows with your business. As sales increase, accounts receivable increases, providing you with more availability. It really is the best form of financing to cover short-term expenses.

Getting Approved For A Short-Term Business Loan
Your ability to get one type of financing over another is based on the structure of your business. For a term loan, you need a sizeable fixed asset with stable value that can be liquidated relatively easily in the event of default.

For accounts receivable financing, you need a stable customer base with enough volume to support the amount of financing you need.

A short-term loan is a smart way to cover day-to-day expenses. Talk to your lender to see what your specific options are and which fit your business best.

Fast A/R Funding specializes in helping small businesses bridge the cash flow gap with factoring. Click below to discover the advantages of OneFee Factoring, or call 888.833.2286 to speak with one of our small business finance consultants.