Equity financing and debt financing have a prominent place in managing enterprise finances. Funding in the form of loans may be challenging when you are just about to start your business. Hence, you have to rely on loans or your savings. Initial capital plays a prominent role in drawing a business towards success. Once you gain experience in this arena, you can play along with your resources. However, initially, you will have to work with short-term business loans because they are a very apt source of finances. Small and medium enterprises often face the dilemma of arranging capital. The financial crunch thereby necessitates you to take note of short-term business financing.
Do you know what debt financing is?
Debt financing is the capital you borrow for operating your business. Hence, the lender or the creditor plays a central role in your venture. There is a difference between equity financing and business finances. Debt financing comes within the range of short-term loans that small business owners desire to take care of their immediate capital requirements.
Different forms of short-term enterprise financing you must know
There are different forms of short-term business financing, from trade credit to short-term loans to lines of credit and factoring. Each of these is different from the other and has its area of benefit.
- Trade credit- The first category within short-term business financing is trade credit. It is a variety of debt financing where you would require credit from different businesses that perform the role of a supplier. These suppliers extend capital to the business at varying interest rates. Moreover, if you pay your debt within time, you might get a discount, the major driving factor.
- Short term business loans- Short-term business loans are for one year or less. Hence, there is a time constraint for the borrower. Businesses require short-term loans more in comparison to long-term counterparts. These short-term finances will help you to meet the immediate requirement for cash without any long-term commitment. Hence, you can take the help of premium financing solutions that offer smooth short-term loans to borrowers. They will fulfill your requirement of continuous business cash in times of emergency. Remember that businesses go through various ups and downs. You thereby require decent creditors to provide you with secured sources of money.
- Line of credit– Another category that will grab your attention is the line of credit. If you have a healthy credit record, you can avail line of credit based on your property. It is also a secured source of capital that requires collateral based on interest rates.
When you do not qualify for short-term loans, you can rely on factoring.
- Factoring– Some companies use your accounts receivables for raising cash on a short-term basis. You will have to sell your uncollected invoices known as a factor and that too at a discount.
These are some of the accessible sources of credit that will help you with your financial issues in times of crisis. Remember that short-term loans are often better than factoring or line of credit. It is because the latter comes with unfavorable terms and high-interest rates. If you want to secure your business with a smooth flow of credit, you will have to rely on short-term finances.