Credit is one of the most important parts of any business whether small or big. There is hardly any businessman who will have enough money to meet all his expenses at short notice. Therefore they take credit to ensure the smooth running of their business. There are mainly two types of loan, long term, and short term loans. Where long term loans are used to meet capital or big expenses of a business short term loans see to the regular expenses. It is said that short term loans are more crucial than the long term loans because they are responsible for day to day expenses of a business. The Small business loan terms can vary from three months to two years depending on the amount of loan taken.

The short term loans are very helpful in meeting the immediate cash needs of the business. Every businessman will have to raise this type of loan to meet, his regular working capital needs. This type of loan can also help a business to compensate the small deficiencies in the capital. When it comes to the small business organizations, short term loans are no less than a boon for them.

small business loan

Why take the Small business loan terms?

For small business firms, short term loans are the major source of funding and play a very important role. It helps them to start up their business, expend their business, perform daily expenses as well as introduce new product line. Apart from these needs here are few expenses that make short term loans a must for any business enterprise:

  • To purchase the raw material without a delay to maintain the production in the business.
  • Pay the bills and other expenses of the organization.
  • To meet the staff expenses like paying compensation to workers etc.
  • They are very useful when the receivables are delayed, or there is no revenue generation in the business.
  • If the business is having low liquidity and there is a lack of cash in hand
  • They are best to meet sudden crisis or to capitalize the business on sudden opportunities.

There are generally two types of short term loans. One is secured, and the other one is unsecured. Where secured loans are raised after giving collateral, unsecured loans can be raised without much of formality.

There are various ways by which a business can raise funds. Some of the most common sources of short term funding are as follows:

  • Bank credit- the businessman can raise the loan from banks as and when they want. They also have an option to withdraw all the money in one go from the banks. It is most common way to rise short term funding.
  • Customer advances– the businessman can ask his customer to make advance payments and utilize the funds to meet daily expenses
  • Loans from cooperatives– for raising loans from co operative banks it are first necessary to be a member of that society.

The Small business loan terms can help a business needs immensely. It raises the liquidity of the firm and increases the credit score as well.