When you are in business, the capital you used to start it is called business finance. Generally, you are putting it into the business on a long term basis, but there are times when a business faces a crisis, or has an opportunity that requires a quick injection of funds, or short term business finance, which enables financiers and businesses to process a deal, to enable something urgent to be processed swiftly. It may be that a competitor or a supplier has gone out of business and materials or equipment that would be highly beneficial, has become available at a bargain price, or that the time is absolutely right for expansion quickly and needs an injection of cash to achieve this.
Using the right form of finance
There are various options available to provide quick financing, though it is important to understand the benefits of each option and choose the right one. The simplest form of short term financing comes from the bank overdraft. Banks understand there may be a delay between delivering a product and getting paid for it, so often provide a company with an overdraft, though raising the limit suddenly can be problematic, and the rates of interest may be quite high. Trade credit, which can be the reason for a delay in getting paid can also be beneficial in the reverse from, where a company can pull product in and have a period of time, before it has to itself make the payment. Trade credit is generally free, so it is an excellent way to finance inventories. Most businesses have a corporate credit card, which as per the household variety, allows purchases to be mad with a certain period of time thereafter to either pay in part or in full, which can be very useful in expense management. Bank loans can be helpful in short term business finance, though varying rates of interest can make them more expensive than other options.
The negative side to short term business finance
When a company needs more money quickly, it can send out the wrong signals. The very presence of a short term loan can make it appear that the business is in financial trouble. Potential investors will look closely at the businesses economic statements and may be concerned that a small company could struggle under the burden of short term financing and its repayments. Having short term loans could affect your ability to get longer term ones, which generally have lower rates. Any late payments could be wrongly interpreted and may have a negative effect on the company credit rating and having them at all should really only be for short term solutions for cash. They should not be used for new ventures, or pushing growth in an expanding company.
If you are running a business and feel that a short term injection of cash could be of benefit, it is a wise decision to thoroughly investigate all of your options. Always ensure you are dealing with a fully licensed business, as anyone lending money unlicensed is operating illegally. Make sure all interest rates, fees or charges are given to you in writing before you sign anything and shop around for the best rates for your needs.