6 of the best ways to use short-term business funding
Finance is one of the most important aspects of a business that enables businesses to run operations effectively and take advantage of growth opportunities. More small and medium-sized businesses are choosing short-term funding options over traditional loans to quickly meet their capital needs. In comparison, short-term funds are easy to access and apply to and do not require collateral. Business owners also look into this alternative as traditional banks have increasingly limited lending to small businesses since the 2008 recession.
This is a great advantage for any business that lacks the assets and capital base of larger companies and needs to advance to the next level. Even borrowers with low credit scores can access this kind of funding and it can also be a way to improve their credit rating with timely payments. Furthermore, there are many options to choose from, ranging from small business loans to invoice financing and the owner is not limited in fulfilling the business needs.
Here are 6 ways to use short-term funding.
1. Purchasing Inventory
You can take advantage of a good deal on inventory that you can flip for a large profit. Inventory is a crucial asset for a business as it forms part of the production costs which largely impact revenue and profits. As part of your regular business operations, inventory control is important to ensure there is available stock at hand. Otherwise, there is the risk of losing customers to other businesses. In addition, you may come across vendors offering inventory at attractive discounts.
Having access to immediate cash injection will give you a competitive advantage over your competitors. For instance, if you are running a clothing store, you can quickly take advantage of the large discounts on the latest fashion items while stocks last, which will bring in more customers, leading to a large profit margin. You can pay back the loan borrowed with the proceeds from the clothing sales and improve your credit rating. And, since you can afford to increase your stock supply, you can leverage them to obtain an asset-based loan in the future. This type of loan tends to attract lower interest rates and is easier to get than unsecured loans.
2. Marketing and Advertising Costs
You may need funding for marketing campaigns to drive increased customer traffic to your store or website. It can quickly get competitive in the market to increase the visibility and reach of your brand. Whether you have an online business or run a brick-and-mortar business, you have to apply targeted and effective marketing efforts.
Depending on the budget for your online or physical business, you may take into account factors such as search engine optimization, content marketing, website design, printed materials, and advertising costs. Outsourcing these services could also add more costs. A short-term fund will be readily available especially if you lack enough funds to cover your marketing budget.
You also save time and minimize the hassle with the easy application and approval process. Even with a small business, you have the opportunity to create a successful marketing campaign allowing you to play at the same level as other more established businesses.
In addition, timing is important in digital marketing as you have to optimize, on capturing your target audience, and increasing engagement which generates sales.
3. Financing a Project
It provides accessible funds when bidding on projects that you will get paid for later, such as construction and engineering. When you have adequate financing, you will be confident in executing a project when you win the bid. When the lender deposits funds into your account, you can plan out the roadmap of your entire project.
You can draw up a comprehensive budget covering labor, materials, equipment, and licensing, among others. Project management can be capital intensive and a short-term loan will spur you to achieve the set project milestones.
You can also cover any arising contingencies which can quickly set back your project. Typically, construction projects use 5-10% of the total budget to calculate contingencies. This will in turn build your business reputation in project management and further expand your operations.
Since short-term funds have shorter repayment periods, usually less than a year, you can keep accessing the loans when your project requires additional capital to continue. This is an advantage as contractors usually do not have a wide variety of funding options for their projects. You will also not be tied to a long-term loan obligation that requires considerable collateral, especially for larger projects with big assets.
4. Managing Cash Shortages
It helps bridge the gap when the slow season hits (if the business is seasonal) or customers are late paying their receivables. Every business goes through phases of downturns in its operations. When this happens, it can easily stall other equally crucial business functions such as purchasing new equipment or hiring new staff.
With a seasonal business, it can be a challenge to get funds to cover the slow months and have ready cash when the busy season arrives. It’s simple to quickly obtain a short-term loan because it offers favorable terms and conditions when you have an urgent need, unlike a bank loan.
Let’s say, your receivables have not been paid on time and you have to repair equipment which is important for your production process. You may consider invoice financing in this case, as you can use your unpaid receivables as collateral to get funds. Even better, the lender will collect payment from your customers, reducing debt collection expenses.
It is also essential for a small business owner with unpaid invoices which can act as loan security without risking personal assets. However, you have to carefully consider factors like interest rates and additional fees depending on your business situation. Overall, having some cash on hand helps to manage any cash flow problems efficiently throughout the financial year.
5. Buying a New Machine or Equipment
As a business owner, you can purchase a new machine or piece of equipment that can enhance productivity. Every business reaches a stage when it needs to upgrade its equipment to reach the next level of growth and profitability. The new equipment will ensure you continue with your business cycle without any challenges.
A short-term loan involves simplified loan processing and you will not be tied to a long-term loan, which involves paying interest for some time. If you choose an equipment loan, a form of short-term loan, you can secure it with the asset you are purchasing as collateral and finance it even up to 100% of the cost.
You can pay off your loan quickly and have your equipment generating revenue for your business. Furthermore, you can gain some tax advantages such as deductions from purchasing new equipment, which can be a great saving on the business expenses.
6. Funding Payroll and New Hires
It is useful when you need funds for payroll or hiring additional staff to keep up with increased demand. These two issues are considered a top concern for most HR professionals in organizations. According to a report by the Society for Human Resource Management, hiring an employee costs $4,129 while it takes 42 days to fill a position. There are also added payroll taxes such as FICA, state unemployment taxes, and federal unemployment tax.
With this outlook, a business has to budget beyond the compensation of the employees and also factor in things like recruiting and training, and development while retaining employees. However, a short-term loan is an affordable way to streamline and finance your payroll costs as your business grows.
You will also immediately hire extra staff that will speed up your productivity to meet your customers’ needs and generate more revenue. With time, you will improve your cash flow due to an adequate and motivated workforce, pay back your loan, and further your business.
If you are a business owner, short-term funding presents a fast and easy way to meet your financing needs. Aside from managing your emergency cash flow problems, it is much more flexible and convenient to access and pay back. In addition, there are multiple options to choose from, allowing you to manage your various business expenses and securing the longevity of your business without necessarily putting up assets as security.
As your business grows, your production costs will also increase, such as hiring new employees or purchasing new equipment, and it pays to have a reliable and always accessible financial source.
MobyCap understands how important funding is and can provide customizable short-term funding for your business. We offer business loans and alternative funding up to $5 million, which have helped countless businesses to achieve their growth potential at affordable and competitive rates. Our committed customer service experts are ready to discuss the options that will meet your business needs.
To move forward today, contact us by email at email@example.com. As a BBB-accredited business, we have experience serving all industries and welcome the opportunity to work with your organization.