There are all kinds of reasons to take out short term loans for personal purposes, but in some cases, you may want to consider a short term loan for your business. Wondering if a short term loan is the right business move? Here are several situations where it makes solid financial sense.
1. Paying for Startup Expenses
Have you always dreamed of starting your own business? Do you just need a few supplies to get started? Then, you may want to take out a short term loan to cover your startup costs. As your business is new, you will have to rely on your personal credit to get the loan. However, that infusion of cash may be just what you need to follow your dreams.
2. Accessing Discounts on Inventory
If you run an e-commerce site or a brick-and-mortar store, you need to keep your virtual or real shelves full of inventory, or you won't make any money. Of course, if you buy the inventory at a discount, you stand to make even more in the long run.
Unfortunately, if you don't have the funds that you need, you won't be able to take advantage of the discount. In cases like this, a short-term loan provides you with the ability to save money.
That's not the only type of discount you may take advantage of with a short term loan. If there's a sale on equipment, marketing, or anything else you need for your business, a short term loan can help you make those purchases. To decide if the loan is financially savvy, just make sure that the amount you are saving is more than the interest rate on the loan.
3. Covering Seasonal Gaps in Cash Flow
Running a business is challenging, and in some cases, you may not have enough cash on hand to cover various expenses. A short term loan can be an effective way to take care of gaps in your cash flow. However, you need to be careful about using a loan to cover everyday expenses.
If you expect your revenues to increase soon, a short term loan makes sense. For instance, let's say you own a seasonal business such as an ice cream truck. You don't make any money in the winter so you can't afford to buy gas or other supplies at the beginning of summer.
However, you know that if you take out a loan you will be able to repay it easily when the summer time revenue starts pouring in. In situations like that, you may want to turn to a short term loan.
4. Handling Payroll
Your employees are one of the biggest assets you have. If you get to payday and you don't have the funds to pay them, you should definitely consider a short term loan. Again, as indicated above, you should have a plan in place related to how you are going to repay the loan, but a loan helps to ensure that you don't write a bad check to your employees.
Additionally, if you don't have the funds you need to cover payroll taxes, you may want to take out a short term loan for that as well. The penalty for not paying payroll taxes can be huge. In fact, the IRS can assess a penalty that is equal to the amount of unpaid taxes. That is basically a 100% penalty. If you get a short term loan with a lower interest rate than that, you are coming out ahead.
5. Avoiding Long Term Debt
In other cases, you may just prefer the format of a short term loan. If you need funds for your business but you don't want to be locked to payments over a long time period, a short term loan makes sense.
If you're ready to apply for a short term cash loan or find out more information, contact us today. At Central Finance, we do our best to approve your loan application.