Short-term loans, what are they and why ask for them?
Urgent need for liquidity and nearly empty cash – a situation that occurs frequently in companies with an unbalanced cash flow. Thus, when expenses and payments can no longer be postponed, it becomes necessary to resort to external capital, in the form of loans or financing. In this perspective, short-term loans represent the fastest solution for those companies in liquidity crisis that are unable to cope with certain costs. What are short-term loans? And how much support do they really offer to your business? Here, in this article, is the information you are looking for payday loans fresno.
What are short-term financing?
A short-term loan is a loan intended for companies that must be repaid to the bank within a short period.
This category includes:
Loans to be repaid within eighteen months, through installment payments or in a lump sum; “revocable” loans, to be repaid at short notice at the request of the bank. Short-term loans are used to cover a portion of a company’s working capital needs , where it is needed.
In other words, these are bank loans designed precisely to cope with a sudden lack of liquidity. A lack of liquidity that comes to prevent the timely payment of salaries and suppliers and that can compromise the financial balance of your business.
The economy of a company – as is already known – in fact provides for continuous flows of money in and out. However, it happens that these flows become jammed over time, and this happens above all when the management of company cash is not followed with precision. This is the case, for example, of companies which, despite having expenses to cover within a short timeframe, allow their customers to pay with long-term maturities. Certain corporate cash flow imbalances are to some extent inevitable but, in the absence of proper planning, they can also lead to a major and serious liquidity crisis .
By taking advantage of a short-term bank loan, however, you have the opportunity to bear the most urgent expenses, without unduly affecting the net worth of your business.
The types of short-term bank financing
Before listing the different types of short-term credit, it is appropriate to make a division between endorsement credits and cash credits. endorsement credits are banking transactions that guarantee the payment of a company’s debt; cash loans consist of the disbursement of a sum of money useful to cover the needs of working capital.
In other words: with the signature credit, it is the bank itself that undertakes to cover your debt; with cash credit, you receive extra liquidity to rebalance your cash flow. Here we will discuss the latter solution. The cash loans offered by banks to small and medium-sized enterprises are in fact many and different from each other.