Wouldn’t business be so positively gorgeous if it didn’t require so much funding? It would, there’s no doubt about that. Unfortunately, a business owner must inject a lot of money in his company to keep it afloat. Short term business loans are a good tool one can use to get some cash flow in his firm. Today, these can be acquired in a variety of sources, but the question is this: should you get one or not?
You be the judge. We’ll outline some of the downsides of these loans, so you know what to expect.
The Disadvantages of Short Term Business Loans
Tricky Interest Rates
Why tricky? Here’s why: many business owners don’t realise the low interest rates promised by the lenders could be per month. What does that mean? It means that the lender can inflate it the second month of the term. If you can’t, for some reason, repay the loan, you’ll probably need to extend the loan. However, you’ll still need to pay that interest. It’s very important to make sure the interest rate doesn’t fluctuate from a month to another. If it does, start shopping again. You wouldn’t believe how many lenders try to rip you off thinking you won’t discern between fixed and variable rate. Now you’re one step ahead.
You May Not Make Enough Profit
Short term business loans make financial sense only when you make more profit than you need to pay in interest. This tiny problem here necessitates some thorough math. If you have to pay, say $10,000 in interest and your profit would be $9500, then what’s the point of getting the loan in your first place? You don’t have to think you’ll have more profit than interest – it’s got to be in the numbers, the facts.
They’re Not the Only Option
There are plenty of other funding options, but businessmen fail to recognise them. For instance, if you’ve been in business for years, you definitely have business partners and faithful customers. Why not get help without any strings attached from them instead of short term business loans? Do you need some cash to honour an order or something else you don’t have money for? Ask for an advance payment from a customer. Of course, in order to be able to do this, you must have a clean history with your customers, so they’ll trust you. If you’ve done some shady things before, you can kiss this leverage goodbye.
You May Not Need Them
Is the equipment you buy crucial to your company or do you want to purchase it just because it looks cooler than your old one? Do you need more office space or you just think you do? Is installing AC something that cannot wait? If the answers to these questions are positive and rooted in true necessity, then yes, go ahead and shop for short term business loans. However, if you have doubts as to whether you want something or need it, you should take a breather and think again, because you could end up in debt for nothing. That will eventually lead to bankruptcy, and there’s no loan that can get you out of that pickle.
You’ll Fall in a Vicious Cycle
Getting a loan can solve a lot of problems, that’s true, but consider this: you take a short term loan from a bank or credit union and two-three months in you realise there’s no way you can pay it back. The lender, very helpful like he always is, makes you an offer you cannot refuse: he’ll give you another loan – with a lower interest rate – you can use to repay the previous one. Please analyse the sentence above. Can you tell what’s awfully wrong? You pay nothing back. You’re still in debt, and that’s as far from the definition of paying a loan as the sun is from the Earth. If this keeps on happening, you’ll never get out of debt. This is one of the primary dangers of short term business loans, or any other type of short term loan, for that matter.
Short term business loans are feasible when you’re convinced you can repay them within the term specified in the contract. Get one for all the wrong possible reasons and you’ll discover that you would have been better off without it. If you’re on the hunt for short term business loans you won’t regret taking, contact ALC Commercial and scan our services. You will definitely find something with sufficient appeal for you. Professional advice can also be provided by the experts you will find on the website, so you are all set from every possible angle. Stay and safe and keep these disadvantages in mind next time you get a short term loan.