Business Reasons for Taking Out Short-Term Loans
If your business is hard up for cash or if you are looking to make an improvement to your business, but do not have the funds saved up, then taking out a short-term loan can be to your business’s benefit. Below are some scenarios in which taking out a short-term learn can help your business to grow.
Machinery or Building Repairs
No one knows when a piece of a machine or a part of the business’s building will need to be repaired. For this reason, breaks can come as a surprise. If you do not have insurance or money saved up, then these expenses may break the bank. Luckily, taking out a short-term loan is a great way to deal with this problem quickly. Take out a loan amount that will be able to cover the expenses. Like a normal loan, pay it off over time. This way, you can get whatever you need repaired quickly without worrying about whether you can afford it up-front.
Sales Dip Coverage
If your business is in a tourist town or is more popular during some parts of the year, then you may want to take out loans during the off-seasons when your profits are lower than usual so you can cover your expenses. This is generally a good idea for small businesses that are just starting out. This is because new businesses may not have money saved up from the more profitable months of the year to cover the expenses they have in less productive parts of the year. However, once your business has been in operation for a few years, you should know to save up money to cover these months, and therefore not make a habit of needing to take out loans.
Anything You Can Pay Off in Under a Year
While there is no one given length of time that short-term loans need to be paid off by (the length will be determined by the amount of money taken out in the loan and the specific rules made by your lending institution), it is generally a good idea to only take out a loan that you are confident you can pay back in a year or less. The amount of the loan, for this reason, will depend on your business’s general profits. So, basically anything that you can pay off in this time, that has not already been specifically listed in this article, you can use a short-term loan to take care of.
These are some of the best cases to take out short-term loans. If necessary, talk to your local lending institution to learn how to take out loans for your business.