Banks can be a great place to get financing for your business; that is if you qualify. Traditional financial institutions tend to require a strong credit history and substantial annual revenue before they will consider your company eligible for a loan.
So what if your small startup is in a bind and needs a loan to keep a positive cash flow? Fortunately, there seems to be an influx of alternative lenders who can offer you short term financing that you may find simpler to get.
But short-term loans typically carry higher interest rates and fees, and they could require payments more frequently – sometimes every day. Every circumstance is unique, but there are several reasons why a short-term loan could be very beneficial for your business.
1. Startups Can Access Funding
Since startups have generally been in business for a very short time, banks often won’t consider them as a loan customer. Alternative lenders might not be quite as concerned with a low revenue stream or a business history shorter than a year. If your company shows a steady, positive cash flow, alternative lenders might look past other aspects that could disqualify you from traditional loans.
2. Easier Approval With Unattractive Credit History
Many small businesses haven’t had the time or the need to build up their credit history. Many others have struggled with finances in the past, earning low credit ratings that make them ineligible for a bank loan. In these situations, a short-term loan could be the best avenue to help your enterprise grow.
Alternative lenders will generally consider your company’s credit score, and it will probably affect the interest rate and the amount of the loan. Still, in a pinch, a smaller amount of more expensive cash might be worth it.
3. Faster Application Process
Often considered a significant trade-off for the expense of a short-term loan is the speed in which you can access the money. Credit rating, current cash flow and documentation of ownership are usually all that will be required when applying with an alternative lender.
Because they generally are high-interest loans, the lenders can afford to take more of a risk and thus aren’t as concerned with your entire financial history. Also, less paperwork usually means a speedier process, and your company approval could come in days instead of weeks or months.
Most small businesses and startups struggle with maintaining cash flow to cover everyday expenses while simultaneously trying to grow. If traditional financial institutions are turning you down, short term financing could very well be the solution you need.