5 Short Term Finance Tips You Aren’t Aware of to Grow Your Business

5 Short Term Finance Tips You Aren’t Aware of to Grow Your Business

Money is the lifeline for any small business. However, unlike large enterprises, they do not have the privilege of deep pockets or a large queue of creditors waiting to lend at the most competitive interest rates. A new business or an emerging enterprise typically works with limited funds and if its cash flow gets stuck in the pipeline, the entire set of operations comes to a crashing halt. A recent study conducted by the National Small Business Association reveals that 19% of small business owners cite lack of available capital as the major challenge in their growth and 82% of businesses fail due to poor cash flow management.

With the government encouraging young businesses to come up with innovative ideas, funding should be the least of their worries. Also, the spirit of entrepreneurship has given rise to new-age FinTech lenders that offer online short term loans to small businesses to meet their urgent short-term finance needs. These firms use the best of technology platforms to make the application process for online short-term loans easier and also to process a term loan in the shortest period of time possible.

Here, we discuss some handy finance tips that should help you utilise online short-term loans effectively for furthering business growth.

Look for a credible FinTech lender

The first instinct for any business looking out for short term finance is to approach a bank or a traditional lending institution. Such institutions provide secured loans at low-interest rates but demand collaterals as security. Also, the loan amount is a percentage of the collateral pledged and needs to be repaid through instalments at specified intervals of time. There is little flexibility in terms of loan restructuring and penalties are levied should you want an early closure of the loan.

So, small businesses that do not have collaterals to pledge might find it difficult to procure loans from banks. The other option for them is to take unsecured loans. One of the sources for unsecured loans is traditional money lenders. However, such entities charge steep rates of interest and operate in an unsystematic manner. Therefore, dealing with them is not everyone’s cup of tea.

This is where the role of new-age FinTech lenders becomes important. You can apply for online short-term loans anytime from any location. They use the best of technology platforms to process your loan application and suggest the best short-term finance option for your need. The entire process takes very little time and if eligible, the short-term loan is disbursed in just a few days.

Choose online short-term loans that best suit your business

There are various types of online short term loans provided by FinTech lenders and each is designed to suit specific business needs. For instance, a working capital loan is good to tide over an immediate shortfall in cash flow that could otherwise impact day-to-day operations of your business. Most small businesses in India typically receive payments from large customers after a gap of 90 days from the date of delivery. However, they do not get a similar leverage from their suppliers and could end up facing challenges in making payments for raw materials, salaries and new equipment.

Merchant cash advance is a good option for those merchants who receive a lot of payments through card payment machines. They can use this facility to take cash advances up to 200% of their monthly receivables and repay through a fixed percentage of deduction in card payment receivables over subsequent months. Online seller finance is another kind of short-term finance that is given to e-commerce companies to manage their daily operations and for leveraging new business opportunities. Yet another product, supply chain finance, allows the finance company to liquidate the borrower’s invoices by paying up to 80% of the invoice value to the borrower.

Easy application process for online short-term loans

Generally, the term loan application process followed by banks is cumbersome and requires a lot of paperwork. You might also need to stand in endless queues to submit the required financial documents. Also, the short-term finance process often requires a lot of back and forth conversation which further distracts a business owner from his core business. The new-age FinTech lenders use the best of technology to provide a smooth and convenient application process for online short-term loans. You can apply for a short-term loan online or through their mobile app anytime and from anywhere. All the required financial documents such as tax returns, identity papers, bank statements and credit history notes can be uploaded online. They use big data analysis techniques to determine your eligibility for online short-term loans. Once approved, the term loan amount is credited to your bank account within three working days.

Check the liquidity available with your business

Even the most profitable of businesses can run into cash flow problems regardless of the numbers shown in cash book records. The inordinate delays in receiving payments from customers regularly cause cash flow issues. Therefore, it helps to keep stock of the liquidity situation before looking out for online short-term loans. A proper evaluation of liquidity is always important and it can be measured by checking the value of quick ratio and the amount of working capital available. Quick ratio shows the capability of a business in covering current liabilities with current assets and is calculated using the formula:

Quick Ratio= (Current Assets – Inventory)/Current Liabilities

Likewise, working capital can be measured by calculating the difference between current assets and current liabilities using the formula:

Working Capital = Current Assets – Current Liabilities

These two values can help you judge the current solvency status of your business and therefore, available funds can be duly prioritised. The shortfall can be made up for through online short-term loans.

Flexible repayment option

Most FinTech lenders specialise in offering short-term finance to small businesses and are therefore aware of their business needs. They also understand that business revenue is volatile which in turn affects the repayment capacity of a small business. So, they allow the repayment of online short-term loans to be either in correlation to the receivables of a business or in the form of flexible weekly instalments. There are no pre-closure charges like those applied by banks, should you decide to repay the entire loan in one instalment.

Such innovative options allow small businesses to continue operations without disruption and give them the confidence to grow without inhibitions. However, you need to calculate the amount carefully and then identify the right short-term finance option from the right lender.