Every day, small business owners across the country encounter new opportunities, cash flow gaps, or unexpected situations. When they need financing for their businesses, they start by looking at their options, and one that they typically come across is short-term working capital.
With an expected payment term that is usually 12 months or less, and with payments that are more frequent than monthly (typically daily or weekly automated payments), short-term working capital solutions usually have higher approval rates, require less documentation, and provide faster access to funds than their long-term counterparts.
Want to compare short- and long-term options? Visit our Resource Center and download Making Better Financing Decisions for Your Business: What Small Business Owners Need to Consider When Comparing Financing Options.
If you’re wondering why a small business owner would choose short-term working capital, here are a few of the key situations where a small business can benefit from the convenience it offers when securing financing for their business.
1. You Need to Move Fast
When a small business owner has an opportunity to purchase another business or to take on a new client, they don’t have time for extensive bank applications and the long review process. At a bank, it can take weeks to have your application considered, and requires detailed records, extensive paperwork, and in many cases a pre-existing relationship with the bank.
With short-term working capital, a small business owner can often receive funds for their business within 24-48 hours from applying so that they can quickly pursue an opportunity or keep disaster at bay.
2. You Want to Stay Nimble
A long-term bank loan can weigh a business down over time. Small businesses need to be nimble so they can move quickly. A shorter term allows a business to get cash, make an investment, and get their business on track without dragging it out over multiple years. Typical terms for short-term working capital are under a year.
3. You Need Access to Cash
While some businesses may use business credit cards to pursue new opportunities or to cover payroll, if credit cards are used for these purposes up to their credit limits, they cannot be used for everyday business purchases. Also, banks that already hold long-term loans or lines of credit with a business may be unwilling to extend additional funds even for a short time.
Short-term working capital can help small business owners access financing when additional bank financing is unavailable and preserve credit card usage for day-to-day needs.
4. You Have Predictable Revenue
Managing cash flow is easier in the short term. When a small business owner has a strong sense of how much revenue they expect to generate, they can manage their short-term obligations more effectively. Many short-term working capital solutions base financing availability on future revenue. Knowing that they will have money coming in the door to cover the costs, a small business owner may choose a short-term working capital solution.
5. You Value Convenience & Flexibility
If you’ve ever run out of milk, and stopped at the nearest convenience store to pick up a gallon, you’ve most likely paid a premium for something you could have gotten somewhere else cheaper. You could go to the grocery store, find a parking spot, walk to the back of the store where the milk is kept, stand in the checkout line, produce your store discount card, and finally, walk back to your car, and be on your way.
But, if you need milk on your way home from a long day, you pull into the closest, most convenient mini-mart. Short-term working capital appeals to small business owners who value the convenience and flexibility of getting funding quickly, without jumping through hoops. It’s not a one-size-fits-all solution for every situation, but it does present another option for small business owners as they assess their unique business needs and seek out financing for their business.
With a fuller picture and a better understanding of long vs. short-term financing options, small business owners can make the best decision for their business given their current circumstances.
Looking for more insight? In our guide, Making Better Financing Decisions for Your Business: What Small Business Owners Need to Consider When Comparing Financing Options, we share the important metrics to compare when looking at financial agreements of different lengths. Visit our Resource Center and download the guide.
Our mission at Swift Capital is to unleash the potential of every small business by providing them with fair and convenient access to working capital. We harness data and technology alongside personalized human expertise to see the true potential in every business. Did you like this post? Tell us what you’d like to see on our blog. Email us at [email protected]