You may have heard of them of late, Short Term Business Loans. They’re know by many different names : Unsecured loans, Cash flow funding and just business loans. They have opened up some great opportunities for Australian SME’s and give option to business where banks traditionally won’t lend.
So let’s take a look at some of the pros and cons:
Fast approvals and funding
Short term business loans are designed for businesses to use for an immediate need or current shortfall in their cash flow, as such they need to be fast. Often approval is received within 24 hours of application and funding can happen shortly after. This way business owners can get the funds they need quickly and get on with running their business.
Use the funds as necessary
Once approval is received funds are transferred directly into the businesses trading account, this allows operators to distribute the funds as they wish. It also allows operators to time payments to supplier, contractors and the like, this may be beneficial if you do not wish to make payment before a delivery or completion of work.
Cash flow based assessment
When short term lenders assess each loan application they take in to account a number of different factors including average monthly turnover, how the applicants business is performing against industry KPI’s and the credit worthiness of the application. One thing that is not a strong consideration in the application process is ownership of property, the loan application is based on the strength of the business first and foremost.
One of the big appeals of short term business loans is that, in general they are unsecured. This means that you do not have you business or personal assets tied up with your loan. This is especially advantageous if you are looking to sell any of your assets.
Limited loan terms
The typical length of this style of loan is between 6 and 12 months, with some even being as short as 3 months. Depending upon the loan amount, approved term and business turn over this can put a strain on cash flow.
It’s debatable that this is a con as it may be preferable for many business owners. Repayments are made either Fortnightly, Weekly and even daily depending upon the lender. Again this can put a considerable strain on your cash flow if funds are not consistently coming in.
Often high interest
This is a big one, these loan products are aimed at business owners that either do not have security or do not wish to use their security against a loan. This mean that these ttypes of loans can attract a higher rate of interest when compared to other options. This is not always the case but often can be.
Restricted to certain industries
As assessment is based on business turn over and industry KPI’s there are restrictions on which industries can apply, this is a bit of a double edged sword. Whilst these restricted industries are unable to get access to these style of loans it may end up being beneficial due to the frequent repayments.
In summary, short term business loans may be a good option for your business, it is important to weigh up the positives and negatives of this style of loan product to decide if it’s suitable.
Should you need more information about business lending contact the team at JutBusinessLoans Phone 1300 898 598