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Frequently asked questions about short-term finance
Tue 30 October 2018 - 11:55 amExpert | Industry | Industry Finance
You should never take out any type of loan without knowing everything about it. Here are the common questions about short-term finance that you need the answers for.
You have a lot of options available to you when it comes to financing. For example, Max Funding, one of the leading non-bank lender in Australia offers different packages for you to check. Plus, you have a choice between long-term and short-term financing. Each of these comes with their own pros and cons that you need to understand.
It’s particularly important that you do more research when considering short-term finance. Such loans often come with different acceptance criteria than long-term loans. As a result, you need to understand exactly what you’re signing up for.
So, where do you start?
This list of frequently asked questions will help you to figure out what you stand to receive with short-term finance.
Question 1 – What are the different types of short-term finance?
Many types of finance fall under the short-term banner. The following are the ones that business owners are most likely to consider:
Short-term loans. This are perhaps the most common solution. As the name implies, short-term loans require you to repay the sum of the loan within a short period of time. Typically, this can be within one year. However, some lenders, such as Max Funding, offer up to 36 months for repayment on some of their short-term loans.
You may also find it easier to access a short-term loan than you would a traditional business loan. They have different acceptance criteria that often make them available to those who have bad credit.
Trade credit. A business may use this type of finance to help them to pay for goods that they’ve already received. Typically, they’ll repay the loan within one month, usually upon sale of the goods.
However, you may be able to secure trade credit with a longer repayment period. Businesses use these loans to help them balance their cash flow. They’re particularly useful for growing businesses that need to expand their inventory but don’t have the required capital.
Overdrafts. If you have a business bank account, it’s likely that you’ve received an offer to create an overdraft. An overdraft allows you to draw money out of your account even if you don’t have money in it. Overdrafts have their limits and usually come with high interest rates. However, you only pay these rates if you dip into the overdraft.
They’re useful for businesses that anticipate running into invoicing issues. They give you some breathing space while you wait for payments to clear.
Credit cards. This is another common form of short-term finance. A business credit card allows you to charge purchases against a line of credit. You then make repayments based on your agreement with your credit provider. These repayments have interest attached, again at a rate agreed with your provider.
Credit cards can prove useful in a pinch. However, the high interest rates attached can cause problems. This is especially the case if you don’t repay than the bare minimum. Over reliance on multiple credit cards can also put you in severe financial difficulty.
Question 2 – When might I need short-term financing?
Running a business comes with all sorts of risks. There may be times when you struggle to balance your cash flow, for whatever reason. These are usually the occasions where you can benefit from short-term finance.
You may use this solution in any of the following circumstances:
- You’ve experienced a sudden surge in demand that means you need to buy more inventory.
- Something’s gone wrong with your equipment and you don’t have the funds needed to fix it.
- Clients haven’t paid on time, which means that you don’t have the cash you expected to have.
Furthermore, you may find that one of your project’s experienced unexpected issues. Such was the case with one Max Funding client. His construction project ran into several obstacles that he didn’t anticipate. This led to delays, which inevitably increased costs.
He required an extra $200,000 to cover those costs.
Max Funding helped the client to use his construction project as security on short-term finance. He received the money he needed to pay the extra costs. Plus, he boosted his credit limit to give him some more breathing space.
So, as a general rule, you’ll take out short-term financing to deal with unexpected issues.
Question 3 – Should I apply online?
Many short-term finance providers allow you to apply online.
This is perfectly safe as long as you check that the website takes the proper precautions.
Check the URL first. You should see that it begins with https://. The “s” is important because it tells you that you have a secure connection. As a result, you can feel safe sending personal information.
If the “s” isn’t there, don’t send any personal details to that website.
Question 4 – Do I have to have good credit?
Short-term financers may take your credit score into account. However, they’re often more flexible than traditional lenders. That means you can often access short-term financing if you have bad credit.
The trade-off is that you’ll usually face higher interest rates than you would with loans that require you to have good credit. Still, this makes short-term finance a potential solution for those who have credit-related issues.
Question 5 – How much can I borrow?
This depends on the lender and the type of short-term finance you require. Your circumstances also play a role.
Some lenders, such as Max Funding, can offer short-term finance of $1 million or more. Others restrict you to a few thousand dollars.
Typically, the lender will determine your maximum financing amount after reviewing your application.
Question 6 – How long does it take to apply
Again, this depends on the lender and the type of finance.
However, you’ll often find that you can complete an application online and get pre-approval in a matter of minutes. It then might take a day or two to receive full approval.
Question 7 – Can I change my mind?
As long as you haven’t signed a contract, you can change your mind on any type of short-term finance.
That makes it all the more important that you read and understand the terms of the finance. In most cases, you’re locked in after you put pen to paper.
However, some financers offer a grace period of 24 hours after you sign the contract. You may be able to cancel the loan within this period. Check with your lender to see if you have this option open to you.
Question 8 – Can I take out multiple types of short-term finance?
The answer to this depends on several factors. These include your circumstances and your lender’s criteria.
It’s certainly possible that you could, for example, take out a short-term loan and get a business credit card. However, it’s crucial that you understand the potential implications. Using several types of short-term finance at the same time increases your repayment burden. It also means you have to pay interest on several sums of money.
Question 9 – How do I know the lender/financer is legitimate?
Legitimate lenders have to obtain a license to offer credit under the National Consumer Credit Protection Act 2009. You can also check with the Australian Securities and Investments Commission (ASIC). Legitimate lenders usually carry ASIC accreditation.
It’s also worth checking for mentions of the lender in respected financial publications. You can also check to see if they’re registered with the Better Business Bureau. If they are, they’ll usually have a rating attached to them. Finally, spend some time researching what others have to say about the lender.
Combine all of that and you should get a good idea of whether a lender/financer is legitimate.
The final word
With these questions answered, you’re now in a better position to determine which type of short-term finance suits you. You should also be able to see if the lender you’re considering can offer what they claim.
Always consider your own circumstances before using finance of any kind. After that, make sure you choose the right lender.
Max Funding can help if you need short-term finance. We offer:
- Pre-approval within five minutes.
- Flexible approval criteria
- Tax-deductible interest.
- Loan repayment periods of up to 36 months.
- Financing for people with bad credit.
- Low-doc loans.
- Early repayment.
- The ability to borrow anywhere between $1,000 and $1 million.
You just need to apply from Max Funding to get started.