When the need for short-term finance rears its head

Here, in association with Everline, we look at the requirement of small businesses to consider a short-term loan and why an online operator may be the answer.

The short-term finance marketplace is a critical arena for small companies. All too often, cash flow pressures impact the day-to-day functions of a small business, whether that is because of late payment in the supply chain, or because of the need to obtain the right stock to satisfy a large order, or otherwise.

There will be moments when you need cash simply to stay afloat, to keep the wolf from the door, to keep your doors open and the lights on. Such a situation might call for an invoice finance solution that allows your business to get advances on cash due from customers, rather than waiting for those customers to pay.

You can see why this is attractive for a financial institution, because they have sight of, and control over your invoices and they have some additional security to fall back on. For your own business, it could be a great way of releasing cash from your debtor book but it does come with risks. Because the cash is tied into your invoices, what happens if you lose a major customer order but still need some short-term cash to fund payroll at the end of the month? No invoices, no cash!

So there is the cash flow solution. But there will be moments when obtaining cash represents a new lease of life for your business – a growth opportunity. It might be a plan to extend a warehouse facility to help you keep more stock; it could be an investment in a new piece of equipment that will drive efficiencies. It will be something that enables you to take your business to the next stage, in order to fulfil your ambitious but attainable turnover projections.

At one stage a bank might have satisfied these needs, but with the financial crisis and the banks’ subsequent aversion to risk, this route isn’t a very attractive choice for many small businesses. Especially when you consider that, now in the marketplace, there exist many short-term loan options that can satisfy your growth needs.

If you use them sensibly, short-term loans can be more effective and affordable than taking up an overdraft and its associated charges and can be more manageable than maxing out your credit card. Because they are only parting with their money for a limited period, most short-term lenders don’t require you to put up any collateral or even ask for a credit check.

It’s true that falling behind with your repayments will impact on your credit score and that could make it more difficult if you went on to apply for a personal loan or a mortgage in the future. But if you choose a short-term loan you can afford, you could actually boost your credit rating by demonstrating your reliability.

The most obvious drawback with a short-term loan is the high rate of interest. But if you pay off the loan quickly, you could end up paying less interest in the long run than if you’d taken out a personal loan over a number of years.

Recently short-term business loan company Everline was acquired by Orange Money Ltd, a business lender backed by the UK government-backed Angel Co-Fund, which solely focuses on providing business loans in the UK.

Following this acquisition, Everline can offer limited liability partnerships and sole traders between £3,000 and £150,000 for up to 18 months. The application process is online with no paperwork and once approved, funds are sent within five minutes.

Customers can even repay early, in full or in part, at any time at no extra cost. This saves customers money as they are only charged interest for the time they have borrowed the funds.

Interest costs range from 1.75 per cent to 2.25 per cent per month on the outstanding loan balance depending on your business risk profile. There is no obligation and the company will provide a full quote if your loan application is accepted.

Related Topics

Small Business Funding

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