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4 Times a Short-Term Business Loan is Right for You

By: Kabbage


Times a Small Business Loan is Right for You

Every business owner has run into cash flow challenges, whether you need more money to grow your business or to meet the operational day-to-day expenses that pop up. If your customer income isn’t covering your business’s financial needs for a period of time, a short-term business loan may be one option to consider. Here’s a closer look at four instances when a short-term business loan can help you achieve your business goals—and how to determine if it’s right for you.

Emergency Repairs and Inventory Shortages

Emergencies happen. Mission-critical equipment breaks down or shortfalls in inventory or components can derail getting products out to customers. Computers break or other unplanned for issues arise. As a business owner, it’s important that you have a plan in place to cover emergency equipment repairs, inventory shortages and other challenges that may arise.

However, the reality, especially for young and growing businesses, is that you may not have enough cash on hand to solve these problems at all times.

This can be especially frustrating when you know that a large customer payment is due or your cash flow cycle will even out in the specific period. During instances like this, a short-term business loan may be the right option for you. A business owner can access the funds needed to quickly get equipment back online or make an urgent purchase of inventory—with the full confidence that they can quickly pay back the funds that have been leant to them.

To Cover Accounts Payable and Receivable Cash Flow Gaps

One of the most frustrating realities for small business owners is the gap between when a product is sold or a service rendered and when the customer pays. Often, your business will extend some credit to customers and invoices will be to a certain number of days after they have been issued. While more generous credit terms can help you gain customers, it can also lead to damaging cash flow gaps.

When reliable customers owe you money and you’re certain those funds are going to come in on a set schedule, a short-term business loan can be a useful bridge for your financial situation.

Closing Gaps to Cover Operational Expenses

Operational expenses can sometimes outpace your cash flow. For business owners, this is a challenging situation to be in. Cutting expenses isn’t always possible. For example, cyclical businesses may need to add headcount and cover payroll while their seasonal operations get underway. Once the business starts rolling in, cash flow will be no problem—but those precious first few weeks are essential in order to get the cash flow started.

In an instance like this, a short-term business loan could be right for you. Often, a business owner can forecast how much money they will need to keep their business operating smoothly. By borrowing exactly what you need—or just enough to give you a small buffer—you’ll be in a good position to keep your business afloat, without incurring too much debt that can’t be quickly repaid.

Investing in High Priority Growth Opportunities

It’s hard for businesses to grow without capital. Growth comes in many forms; sometimes growth requires hiring new staff or investing in a marketing campaign. A short-term business loan can help you capture the advantages of marketing campaigns or advertising opportunities that you’d otherwise miss out on.

To decide if this is a good investment, look at the interest that you’d repay versus the ROI you’re likely to receive. If the ROI is higher than the interest expense, a short-term business loan could be a good option for helping you expand your brand’s reach.

A short-term business loan can help companies bridge the gap during a cash flow shortfall or make strategic investments in growth opportunities. It’s important to think about what your goals are, run the numbers and choose an option that’s right for your unique situation.

Published: May 23, 2016

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The Kabbage Team is here to not only fund the small business loans you need but to help you grow your business through free marketing tips, webinars, tools and more. Kabbage empowers small businesses through straightforward, flexible access to capital. We’ve extended more than $2 billion directly to small business owners and powered automated funding for other organizations all over the globe – all while maintaining a remarkably high laughter quotient.

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