With all the common information about short-term loans, it is time to delve into the details. To look closely at your short-term loan options, we have divided them into the 4 main types of short-term loans. Let’s look at what these short-term financing options can provide your company:
1) Merchant Cash Advances
The first type of short-term loan on our list is not really a loan, it’s a down payment. That said, a cash advance from a merchant is when a lender buys future sales of your company’s credit cards, so it basically serves the same purpose as a short-term loan. This type of short-term loan is one of the most widespread and accessible types of commercial financing. On the other hand, it is also often the most expensive type of short-term loan.
Cash advances from merchants are paid through the point-of-purchase technology of the credit card, either a tablet supplement or a simple credit card machine. Your lender will cut off a daily percentage of the income of your company’s credit card even before they reach your company’s accounts. This will happen every day that your company transacts with a credit card until the cash advance from your merchant is canceled completely.
2) Lines of Credit
This short-term loan option works much like a commercial credit card: you will receive a credit limit that you can use as required and then reimburse what you spend regularly. However, this short-term financing option is always made in cash, while commercial credit cards usually charge you high fees for cash advances. In addition, you will generally be able to access lower annual percentage rates with a commercial credit line than with a commercial credit card. That said, commercial credit lines do not come with the rewards, such as cash reimbursement or travel miles that a commercial credit card can offer you. More details!
3) Invoice Financing
This type of short-term loan serves to give a solution to a very particular financial problem: a cash flow suffocated by pending bills. Through bill financing, a lender advances a percentage, sometimes as high as 90%, of the value of your outstanding bill. Depending on the number of weeks your bill is outstanding when you receive funds; your advance will accrue interest at a fairly low rate.
After your client completes your bill, your lender will intercept the remaining percentage of your invoice, subtract and claim the interest that accrued and then return the rest of the invoice value to your company.
4) Short-Term Loans
As the name implies, the short-term loan is the most direct of your short-term loan options. This type of loan works like a condensed version of a traditional term loan: your company will get a lump sum of cash that it will pay, plus interest, consistent with a predetermined payment schedule for a predetermined period.
On the other hand, you will have to pay off short-term loans much faster than a traditional term loan. As such, they are usually less manageable in the context of the frequency and amount of payments, with high daily or weekly payments. As a result, short-term loans are usually one of the most reasonable options of all types of short-term loans available to small business owners.
While it may seem that a small business loan will always involve a lot of paperwork and waiting weeks, most short-term loans can finance your business in less than a week, if not a day. You have already completed the hardest part: get all the essential information about your choices, reading this article. The next step is just easy, you just have to apply and you will be well on your way to getting the financing your company needs to grow. For more details, visit: https://smallbusiness.chron.com/ways-short-term-loan-3613.html