Short Term Business Loan

Short term business loans are a necessary part of running a business. These loans are set up to cover short term costs for small businesses, allowing a business to purchase necessary supplies and hire labor to complete a project. Short term business loans can come in several forms. Traditionally, a business would establish a line of credit with a local bank. In fact, many businesses still use a traditional line of credit to fund their ventures today. This line of credit is typically backed by assets of the business, such as equipment or real estate. The loan works much like a checking account, in that a business is able to use only what they need; it is not obligated to use the entire amount of credit extended. Additionally, a business can make several withdrawals of money before having to pay back the loan, and paying the loan back can occur either as a lump sum payment or as a series of smaller payments. For example, a business that receives a line of credit of $100,000 could choose to only spend $20,000 of it on supplies. The following month, it can spend an additional $20,000 on more supplies while it invoices customers for the products sold last month. By the third month, the business can repay part of the money it took out for supplies with the customer payments, but still leave enough cash on hand to pay salaries. Recently, several credit cards have come on the market geared towards offering short term loans to businesses. These cards can be more convenient for businesses who have multiple employees purchasing supplies and/or a lot of smaller suppliers that it needs to make individual orders from. A credit card can be given to each employee, and individual approval for each item is not necessary. In some cases, however, these cards come with higher interest rates and shorter pay back periods. Interest rates on short term loans can vary based on a variety of factors including what assets are used to back the loan, the creditworthiness of the business, and the total amount. O the credit extended. Ideally, a business will pay back these short term loans as soon as they are paid by their customers. A line of credit is usually meant to last only 90 to 180 days, and some short term loans have pay back periods as low as thirty days. Businesses that need capital to purchase large equipment or large assets should not use a short term business loan, but instead apply for a longer term loan.