As a business owner, you’re probably very aware that businesses of all shapes and sizes often face short-term cash flow issues (as often as daily!). Flexible, short-term business loans are available to help, and they may provide many benefits over long-term business loans in Australia.
What are Short-Term Loans for?
There are plenty of reasons why a business would need short-term financing – here are some of the most common:
Managing Cash Flow Gaps
If your business experiences seasonal fluctuations, you can use short-term loans to cover operational costs during off-peak periods. You can also use short-term financing for working capital when waiting for delayed payments from clients. The funds can help you maintain smooth business operations and avoid any financial issues.
Emergency Expenses
When essential equipment for your business needs urgent repairs, short-term loans can provide the necessary funds to address the issue quickly. This way, your business can go back to operating normally and avoid any losses.
Expanding Inventory
Businesses can use short-term loans to purchase additional inventory before peak sales seasons. Businesses can also leverage short-term loans to buy larger quantities of inventory at discounted rates.
Marketing and Advertising Campaigns
Short-term loans can fund marketing campaigns to promote new offerings, helping to boost visibility and sales. You can also use short-term loans to finance advertising efforts during peak seasons, driving higher customer engagement and revenue.
Capitalising on Business Opportunities
Short-term loans can provide the funds needed to explore and enter new markets quickly. You can also use short-term financing to go after time-sensitive opportunities that will bring better results for your business.
How Long is a Short-Term Business Loan?
The length of a short-term business loan can be customised to suit your needs. They are as short as a few weeks and can be up to five years.
What are the Benefits of Short-Term Business Loans?
Taking out business loans short-term can provide you with a range of benefits:
- You may pay less interest overall than you would on a longer-term business loan.
- They usually have a quicker approval process, so you can get the funds you need faster — as fast as same-day finance.
- You can arrange a repayment plan that suits your business cash flow needs.
- If you want to repay a long-term loan early, you’ll often be charged early repayment fees. This is avoided by taking out a short-term loan.
- Large and small business loans are available.
Funds can be accessed as a secured or unsecured loan.
Short-Term Vs Long-Term Loans
When you repay an amount of money over a short time frame, the repayment amounts are going to be higher each period compared to if you were repaying the same amount over a longer loan term. However, this certainly isn’t a bad thing. If your cash flow allows you to keep on top of the higher loan repayments that come with short-term finance, you could end up saving thousands of dollars in interest expenses compared to long-term loans. This is due to the effects of compound interest.
For example, consider a $100,000 loan with 8% interest rate. This loan can be repaid in two years by making $4,550 monthly repayments. The same loan amount could be repaid in six months by repaying $20,000 per month.
By paying the loan off faster, the interest expense would be $2,043. Paying the loan off over a longer term ends up costing $8,491 in interest costs, which is significantly higher than the short-term option.
Who Provides Short-Term Business Loans?
There are a range of short-term business loan providers in Australia, including traditional lenders like banks, non-bank lenders, as well as the private lending sector. However, it can be more difficult for businesses to get loans through traditional lenders as their lending criteria are generally a lot tighter.
Short-term Business Loans Eligibility
Business loan eligibility will depend on the lender and your business’s financial circumstances. In general, lenders may look at the following:
- Financials
- Credit Score and History
- Length in Business
- Debt Ratios (like the Debt Service Coverage Ratio)
- Specific Industry
It’s important to note that not all lenders will look at all the above criteria. Traditional banks may be more strict when it comes to approving short-term loans but offer the most competitive rates. Meanwhile, non-bank lenders may have less strict criteria and can approve short-term loans faster, but may have higher rates.
What Is The Best Way To Source A Short-Term Business Loan?
The best way to source a short-term loan that’s right for your needs is to contact a business finance specialist who can compare business loans for you. At Dark Horse Financial, we take the time to understand your business and needs before offering a suitable finance solution and recommending the best type of lender for your business needs.
We are across all the short-term business loans available in the market and specialise in unique business finance strategies that will save you the time and hassle of researching the market yourself.
Are there any alternatives to a short-term business loan?
There are many types of secured and unsecured business loans in Australia, which can be used for long or short-term purposes. Different types of business finance can be used for short-term purposes, including the following:
- Overdraft Facility: A revolving line of credit that allows you to access funds and use them for any business purpose up to your pre-approved limit.
- Business Line of Credit: Allows you to borrow up to an approved credit limit if and when you need it, and you only pay interest on amounts used.
- Invoice finance: (also known as debtor finance) Helps to accelerate cash flow by allowing you to access revenue from invoices you’ve issued to your customers. Invoice finance is a short-term line of credit option available to businesses that provide credit terms to their customers (for example, 30 or 60-day accounts) and have unpaid invoices to essentially use as security against a line of credit. Invoice financing enables you to access up to 85% of the value of your unpaid invoices immediately, rather than waiting for your customers to settle their accounts.
- Trade and Import Finance: Provides upfront credit to purchase material goods or stock. It is a short-term finance option that you can use to pay your suppliers upfront. You can then repay the credit up to 180 days later when you have the cash flow to do so.
What is the best way to access a different type of business finance?
Again, it’s best to use the services of a business finance specialist. With such a diverse range of business finance products, finding one that perfectly suits your needs can be difficult. For example, taking out a term loan to help manage cash flow issues is generally not the most efficient or cost-effective option. We can recommend the most appropriate finance strategy and products for your business needs.
If your business has short-term finance needs, there are so many different options available. We help you navigate these different options and find the best business loan interest rates, products and features. Get in touch today to learn more about your business finance options.
Business Loans FAQs
How do business loans work?
Business loans are offered to self-employed people or business owners for a variety of different purposes. The loan amount is paid out with an agreement that the borrower will repay the amount over a given loan term at specified interest rates. The loan could be a fixed-rate loan or a variable-interest-rate loan.
How long are business loans?
There are short-term and long-term loans available for business owners in Australia, so business loans can have terms ranging from a few months to several years.
How much can I borrow using a short-term loan?
The amount borrowed varies greatly depending on your circumstances. Amounts start at $5,000 and can go up to $50M.
Are there any restrictions on how I can use a short-term business loan?
Some types of finance have a specific purpose — examples of this could be development finance, or equipment finance to purchase an asset or, in the case of debt consolidation, to pay out and clear another loan.
Loans are also available for any legitimate business purposes. Some of the loans we’ve funded were for many reasons, including working capital, bridging finance, fitout finance, tax debt, business acquisition, product development, marketing solutions, development finance, debt consolidation, term extensions and others.
How do unsecured business loans work?
An unsecured business loan does not require any property security to secure the loan. Instead, the lender will look at your financial and credit history to see if you can demonstrate the capacity to repay the loan.
How do secured business loans work?
A secured business loan is a loan provided and secured by assets equal to or greater than the value of the loan. Examples of a secured loan could be a first mortgage, second mortgage, caveat loan, or a chattel mortgage like those used for equipment finance. The security could be residential or commercial property, vehicles, equipment and machinery, even your accounts receivable in the case of invoice finance.
How do I apply for a business loan?
You can apply online through a lender's website, by visiting a branch, or through a loan expert like Dark Horse Financial. The application process usually requires you to provide personal and financial information.
