Short-term financing for businesses is generally considered to be any form of finance that is paid off in under a year (sometimes 18 months).

Sometimes known as working capital financing, short-term financing is most often used to smooth out the fluctuations in cashflow, and enables businesses to operate day-to-day and invest in the future with confidence.

Every small business experiences cashflow pressure at one point or another. Maintaining a positive cashflow is key to the ongoing success of all businesses. Short-term financing can help a business maintain a positive cashflow.

asset based lending

Do you experience any of these problems?

  • Are you sometimes waiting on a large invoice to be paid? Hurting your ability to pay day-to-day bills or to invest?
  • Is your business seasonal? So, at certain times of the year, cashflow is a problem?
  • Do you need cash to fund an increase in inventory to meet unexpected demand or customer orders?
  • Do you sometimes need extra cash to purchase new equipment?
  • Do you struggle to fund the hiring of a new employee in the short-term which would enable your business to grow faster?
  • Do you want to expand, but lack the funds to get things going?

If you answer yes to any of these, then short-term financing could be the solution for your business.

Short-term financing is easier to qualify for, funds are released more quickly (sometimes within 24 hours) and has a lower total cost of capital.

Speak to us today to find out more.

Short-term financing sources

There are a variety of sources for short-term financing. From trade credit to invoice factoring,  short-term loans or business lines of credit. We look at the advantages of each below, although it should be noted that both invoice discounting and invoice financing are excellent short-term financing sources.

The traditional method of obtaining a loan from your bank or other lender is not always straightforward for new businesses or SMEs. It is often a lengthy process and you are not guaranteed to be accepted for this type of credit. However, there are lots of other options open to you. The options can be more flexible, quicker to a decision and funds being released, and do not necessarily tie you into a long-term credit agreement.

What do you need the finance for?

As a business owner, there are many demands on your finances. Day-to-day operational costs, start-up costs or paying for inventory, equipment or other bills. If you are looking to expand, hire new staff or just needing a short-term boost to your finances, then committing to a long-term finance option might not be right for you.

For example, investing in a new machine might mean you are able to improve your profit margin. Therefore, a short-term investment would reap great results for your business in the longer-term.

So, having determined what you need the finance for, which is the best finance source for you?

Short-term financing examples

So which form of financing will be right for your business needs? Let’s explore some of the common sources of finance, and their pros and cons.

  • Overdrafts: One of the most common forms of finance. Flexible and helpful for unforeseen expenses, however they can become expensive due to the high interest rates often charged.
  • Trade credit: This will allow you to purchase materials or stock from a supplier, but pay them later – often once you’ve had the time to process them and sell your products to your customers. These agreements need to be made with each individual supplier and form a credit agreement between you.
  • Commercial bank loans or secured loans: The traditional method, but since 2008 has become harder to secure and the interest on these credit agreements can be high, and the repayment terms longer.
  • Short-term loans: These operate similarly to traditional loans, just the term will be between 3 and 18 months. These are good options for quick access to working capital.
  • Merchant cash advances: For business that have lots of sales via credit and debit cards. The financing company will take a portion of your sales, plus their fee. MCAs are often the most expensive form of financing.
  • Business lines of credit: These are similar to a credit card – in that once set up, you can access it as and when needed. Therefore, they are very flexible, but often come with high interest rates.
  • Invoice financing: Short-term invoice financing will likely be the most affordable solution for you, and also the easiest to obtain. This is because your debtors’ book becomes your collateral and this is a safer risk for the factoring company. Typical fees for invoice finance are around 3%.

In many cases we might recommend invoice factoring or discounting, but can advise you on MCA, ABL and other solutions too.

Talk to us today to explore the best options for your business.

Advantages of short-term financing

The main advantage of short-term finance is to cover cashflow issues and the ease of application. Short-term financing is often used for working capital, hence it commonly being referred to as working capital financing. The main advantages are:

  • Much easier to apply for and secure.
  • Enables you to boost your cashflow immediately, without long-term repayment commitments.
  • Enables you to capitalise on an immediate opportunity.
  • Covers large unexpected expenses efficiently.
  • Pay less in total fees vs long-term credit. Because you are paying the loan back quicker, you pay less in fees and interest than a longer-term finance option.

Invoice finance providers

From traditional banks to specialists in Asset Based Lending, or discount factoring companies link, the choice of invoice finance provider is vast.

We work with the vast majority of invoice finance companies. By understanding your business needs and circumstances, we are able to advise which would be the best fit for your business. Our independent advice means you are able to obtain the best solution for your needs.

We will provide you with invoice finance quotes to enable you to understand all the costs involved – allowing you to make an informed choice.

With our head office in Derby, but serving the whole UK, we provide invoice finance for SMEs. We have years of experience in invoice factoring and discounting.

Ignite Business Group works to understand your company’s specific objectives and matches your business with an invoice finance lender that’s best tailored to your funding needs.

Contact Ignite Business Group today to see what we can do for you.

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