Short Term Business Capital

There are times when a business urgently needs cash to meet a short term commitment. Employee wages may need to be paid or suppliers paid off. The ideal way to meet these requirements is through internal accruals or the cash that is generated in the normal course of business. In the absence of cash being available in the business, short term business capital is available from a number of banks and other finance providers. This is useful at times when other sources of funds have dried up but certain financial obligations have to be met. For example, your business could have customers who are willing to buy your product but it is possible to fulfil their requirement only if you are able to get your supplier to provide you with the materials that you need. Meanwhile, your supplier may not be willing to extend further credit to you as your limit has maxed out. At times like these, short term business capital can be accessed to ensure that you are able to continue operations. When using a short term loan or short term business capital to meet your financial needs, it is advisable to keep several points in mind.

 The rate of interest that you pay on short term capital would be higher than for many other sources of finance. You would be able to get a long-term equipment loan at much lower rates. Due to this reason, it is a good idea to use short term business capital only for short term purposes. A good rule of thumb to follow is that you should be able to repay short term business capital within a month or a few months at most. If you do not repay the money within this time frame, the interest burden could become too much for your business to bear. A second point to remember is that you should not make the mistake of using short term business capital for a long-term purpose. An enterprise that uses a short term loan to refurbish office premises is locking itself into a situation where a high rate of interest will need to be paid for several years. If the loan is of a sizeable amount, it may even threaten the survival of the business. At times, the ability to access short term business capital can be crucial to a business’s survival. But this mode of finance should be used carefully and only for limited periods of time because of the comparatively higher rate of interest that it carries.