Short Term Bank Loans for Start Ups | Small Business Loan Central

Short Term Bank loans

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Posted: 8/13/11 04:10 PM

Contributed By: Sandeep Bansal FRIEND HIM ON Twitter | LinkedIn | Facebook

In current market conditions, there exist many challenges that threaten the success of small business owners. They often find themselves looking for short term bank loans to buy a new piece of equipment, or pay down a deposit for a new location or invest in a local advertising campaign.

The capital environment in today’s economy is pretty dry and demand for short term bank loans for small businesses has increased since the economic recession.

For example, your small business accounts payable schedule may be shorter than its sales cycle. In this instance, you may need a supplemental capital infusion to raise sufficient working capital to tide over the lean months.

With this article, we try and explain how these loans work, and the factors every small business owner should consider before getting a short term bank loan. Disclosure: Towards the end of this article, there is a short form that you can fill to submit your short term bank loan requirements and we will match you up with up to three lending partners.

Short Term Bank Loans – What are these?

Short term bank loans are cash loans that banks provide to small business owners with usually a preset term period (12-36 months, sometimes up to six years in case of vehicle loans) to pay back the loan including interest. A short term loan may be structured similar to other business loans, but has a few unique features.

A short term bank loan

Is not a line of credit
Is provided by a bank in the form of a lump sum payment
Is secured against an asset such as an automobile, building, cash or inventory. (You may also apply for a short term unsecured loan )
Can be used for purchase equipment, vehicles or inventory
Interest rates are based on term of loan & credit history of the business owner and can vary between 7% to 12% APR

What are the requirements for a Short Term Bank Loan?

Short term bank loans have a few general requirements in order to be approved for funding. Although these requirements are not as strict as a corporate line of credit, you may find these guidelines differing from bank to bank.

• Borrowers, in their individual capacity must have a satisfactory credit worthiness rating. If you have had a severe negative occurrence on your overall credit report, such as a bankruptcy or a chapter 11, it is possible that the bank will deny you a short term loan.

• In case you are securing this loan against property, some banks will expect a mortgage on your residential property and disallow second homes as collateral.

• Only legal residents and citizens of United States can apply for these loans

What can I use this loan for?

Short term loans are ideal for small business owners that need assistance temporarily until business resumes. Accordingly, these loans are useful for these short term needs of a small business

Stocking up on Inventory for Seasonal Sales
Leasing or Purchasing New Vehicles for your Business
Equipment Buying or Leasing
Invest in Advertising & Marketing
Meet Payroll expenses for longer durations until your business scales

Who Benefits From Short Term Bank Loans?

Business owners that are experiencing seasonal trends and need access to cash fast at a reasonably low rate with a quick and easy application process.

Advantages of a Short Term Bank Loan

Quick Infusion of Capital in the business
Fixed Interest Rates
Easy Approval Process
Cash Paid in One Lump Sum

Points to Consider

• Guaranteed Personally Short term business loans are typically guaranteed by the owner, business partner or member. Many owners do not like to put their personal credit on the line for business expenses. In fact, several financial experts urge business owners to start establishing a separate business credit report.

• Collateral Since these loans are generally collateralized, a business stands to risk losing the primary asset in case business doesn’t grow as planned.

Conclusion

Short term business loans can be true life savers for businesses that are experiencing a temporary shortage of working capital. Banks will work with business owners that may need assistance. Compare lenders to find the best rates and terms.

Short term bank loans can help businesses that have sales in the pipeline, but the cash will not be accessible for use until their customers pay and/or until their cash-flow cycle improves to the point of being positive for at least two future quarters. Like all forms of loan or credit, short term bank loans can be a dangerous tool if used irresponsibly, possibly resulting in massive interest overloaded debt for a small business owner, and possibly the entire failure of the business Short term bank loans are an excellent method for funding your small business if you foresee your capital requirement not extending beyond a couple of years. By allowing smaller companies the tools to grow, short term bank loans establish themselves as a building block in the modern economy.

FOOTNOTE: More recently, certain banks have started offering a product known as “direct deposit advance”, or “checking account advance”, which should not be confused with a Short Term Bank Loan. These loans operate pretty much like a pay day loan, and generally carry a price tag of up to 365% APR, according to Center for Responsible Lending.

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