Running a business is a delicate balancing act in finance management. As a small business owner, you must be able to carefully evaluate your income and expenses in order to turn a profit as quickly as possible. Unless you’re independently wealthy, you will need to secure funding to open your business. A common problem for business owners is knowing when short-term funding is a good idea.
Taking out too big of a loan means you will be losing your hard-earned cash to interest payments. Taking out too small of a loan could result in a failure to buy enough product or an inability to fund company growth. Included here are a few instances when it makes sense for your small business to take out a short-term loan.
Startup Costs
The initial cost of starting up your business can be incredibly expensive. After securing a small business loan, angel investor, or private funding, you could still find yourself a little short. Cutting costs too much during your initial startup could result in a “failure to launch” story. If you find yourself lacking only a couple thousand during your initial startup, taking out a small business loan could help your business get on the path towards success.
Slow Seasons
Many businesses will go through periods of high profit, followed by slow seasons. Unfortunately, when your company first starts out, those slow seasons can be insurmountable financially. If your company is recently launched and unable to weather a slow season without additional funding, it can be wise to take out a short-term loan. Additionally, if your company is waiting for accounts receivable to clear, you can keep your company running with a short-term loan and pay it back quickly.
Increase Inventory
If your company has a particularly busy season approaching, it is wise to stock up on product and inventory. Unfortunately, for those who are in the middle of a slow time, extra funding could be running a little short. When a guaranteed uptick in business is foreseen, it can be wise to take out some short-term funding to boost your inventory. You will be able to pay it back quickly as business picks back up and it will earn you back more than its original value in the long-term.
Emergencies
Nobody loves having an emergent expense but they happen to even the most prepared of business owners. If your company is unable to continue operating due to an emergency, it is critical you get the funds to remedy the problem. Whether you have an equipment problem, staffing issue, or building maintenance, short-term funding can be the answer to getting your company back on its feet.