Short term business financing
Business financing is never lacking of constant debate and expositions about the need and viability of short term measures geared towards either rescuing or energizing businesses. The situation being experienced at the Wall Street and the world economy at large may just highlight what business people and even politicians imagine of short term measures.
The Chairman and CEO of Berkshire Hathaway, Warren Buffet, said that short term Treasury is screaming that there are great fissures in the debt market and that lending is drying quickly. For him, if the proposed rescue plan fails then in his words “Heaven help us”. His position is certainly contradicted by many other business people of equal measure.
Anyhow, the position of short-term financing of businesses has earned the respect of many. Indeed, most businesses will stay afloat during market upheavals thanks to trade credit, secured loans, unsecured loans and factoring of accounts receivable as sources of short term business financing.
Strategies
As more and more businesses succumb to the normal beatings of the economy, management will continuously ask: What are the business short term financing strategies available in the market and how do we take advantage of them? Let us examine some of these.
Short term business loans are accessible and help to erase cash flow deficits especially when business debtors fail to pay for the sales within a reasonable period of time. Generally, these loans have short maturation periods (three to four months). This should act as a guide to borrowers when they are making repayment plans. In fact, commercial banks always demand to be given these plans as a pre condition to lending.
They will vary from being expected to service the loan once the business acquires normal cash flow or when it has been able to sell its inventory. These short term loans are considered to be less risky than long term loans and therefore preferable by banks and other lending institutions.
An example of how institutions manage their short term loan structures
The Small Business Administration of the United States ( SBA) established what they call CAPlines on short term financing. These provide guarantees on working capital loans and lines of credit. Their repayment structure is quite favorable to most small businesses.
They allow borrowers to commence repayment of the loan after he/she has received its payment for the goods or service. These can be advanced for the purposes of specific contracts, special needs, and general business purposes including inventory purchasing, and amalgamation of short term debts.
These loans may not be required to pass the stringent rules including deposit of collateral. The effect of this is the attraction of high interest rates.
Other forms of short term business financing
Although commercial bank loans have long dominated the short term lending markets, other alternative players have also come in. Some angels may invest in a business for the short thrill to be experienced. This is especially the case if there is a possibility of high returns. Some venture capitalists have also formed a reputation of lending with a view of making the short tem gains and thereafter exiting the business.
Acquisition of short term business financing will, to a great extent, depend on the approached lender and what they consider to be a short term loan.
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