Short term financing is business financing that you obtain usually for a term of one year or less. The term is normally six to twenty four months. Your business may require short term financing to use as working capital. Working capital is the business money that you need for the day-to-day operations of your business. You may need to pay suppliers, purchase a piece of equipment or just pay the utilities. The cash flow may not always be sufficient at the time you need it most so you will have to seek funding from an alternative source. Several options are available to your business to gain access to the working capital.
A line-of-credit provides a cushion for your cash flow and also a hedge against unexpected expenses. Lines-of-credit may be acquired in several ways. You may pre-qualify for a credit limit with your bank or other funding source. The advantage is that you will have immediate access to capital when needed and you only pay interest on the amount of money that you use. For example, if you have a credit line of $50,000 and you use $15,000, you will only pay interest on the $15,000 balance. Once the balance is repaid, you will have the full $50,000 credit line available to you again.
A business credit card from one of the major card companies is another way to obtain a line-of-credit. You can use a credit card to purchase inventory, supplies or raw materials. You must use a credit card for your business as judiciously as you would use a personal card. You don’t want to be burden with unnecessary credit card debt, especially when you are trying to build cash flow.
You can acquire overdraft protection for your business account in much the same way as for your personal account. Should your cash flow slip and your become overextended, the overdraft protection will kick in and save you from the embarrassment of not being able to meet your obligations. The protection of your credibility with your bank and suppliers is well worth the minimal cost for overdraft protection on your account.
You can seek a short-term loan for a specific amount from your funding source. For example, if your business is a seasonal one, you could take out a loan at the time your cash flow is strong. Then use this short term financing for operations during the slow months. Your objective should always be to pay off a short-term loan as soon as possible.
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Trade credit is credit given to you by your suppliers. Your suppliers may not be willing to extend you credit if you are a new business or have not established a good credit rating. You may have to pay with credit cards for your first few orders until you have established creditability with the supplier. A supplier will usually extend credit to you with an offer of a 2% discount if you pay the invoice within 10 days. The net payment is due in 30 days from the date of purchase. This payment arrangement is commonly referred to as “net 30” by the company’s Account Receivables Department.
You will receive the discount of 2% if you pay early. You will be required to pay a penalty if you pay the invoice after the 30-day period has elapsed. The late payment penalty will be considerably higher than the 2% discount.
You may also want to explore other financing options such as accounts receivable financing, asset based lending, business cash advances elsewhere on the Business-Money-Source website or fill out the short "Contact Us" form with any questions or comments that you may have.
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