Entrepreneurs often use short-term business loans to get through uncertain financial periods. Some examples: seasonal purchasing, newly launched advertising campaigns, and initial start-up financing.
Usually, banks provide these short-term loans as lines of credit, and generally the loan must be paid off by a specified time – anywhere between 90 days to a year, usually. As convenient as short-term business loans may seem, they are not a panacea. If planning goes wrong, they can lead to financial challenges.
Here are some things to keep in mind before taking out a short-term business loan:
1. A Loan Should Directly Result in Revenue Growth
Usually, entrepreneurs do not take out short-term loans unless their companies’ financial projections indicate that this boost provided by the loan will result in direct, immediate revenue increase. Only an immediate revenue boost will allow you to meet the monthly payments required.
2. Don’t Take Out a Loan For Risky Projections
If your small business’s financial projections are looking unoptimistic or risky, don’t take out a short-term business loan. Inability to repay the loan will hurt your company’s credit score, and this will make future loans more difficult to attain.
3. Have Enough to Repay the Loan
In the event that your goals or projects do not come to fruition, you should try to have enough money stowed away to repay the loan anyway. This will ensure that your company’s credit score will not be compromised. Always plan for the worst.
4. Plan Carefully
Take into account interest rates before taking out a short-term business loan. The interest rates are adjusted according to the U.S. prime rate, and this rate tends not to change too drastically within a 90-day period. Regardless, you should discuss any potential changes in interest rates with an expert.
Biz2Credit (www.biz2credit.com) can help you figure out the best path to take. Loan specialists can help you navigate through the array of options to pick the one most suitable to your business. Visit the website or call (877) 861-2210 for help.