What Can Short Term Finance Be Used For?
Interestingly, many people are automatically drawn to long-term financial arrangements even if their financial needs are only short-term. Short term finance is often misunderstood as there is less interest to pay, funding is usually available at short notice, and the reduced duration means no long-term debt is hanging over your personal or business finances.
Whether looking for a short term loan to buy a house or quick short-term business loans, many options are available. Here at Quick Loans, we have provided finance to various businesses and individuals for many different reasons.
Business bridging loans
While more traditionally associated with purchasing personal property, bridging loans are also available for businesses. Business bridging loans can be used for various reasons, with some examples below.
Buy new equipment before selling old
One of the more prevalent business short-term loan NZ options revolves around replacing old equipment. The equipment being replaced will often have a residual value, but this may take some time to achieve. If a business was under pressure to agree to a sale of the old equipment as a means of part-funding the new equipment, they might not be able to achieve the full value. Access to short-term finance means there is no immediate rush to sell the old equipment. When eventually sold, the funds would be used to repay the short-term loan NZ.
Buying materials for a big order
Quick short term business loans are seen by many as a sign of weakness when very often it is the exact opposite. It is sensible to monitor and secure any short-term funding requirements, but it can also be a form of long-term investment. Imagine the scenario; a manufacturing business has negotiated a massive order with a new client. They require additional labour, maybe extra machinery and materials. Do they turn down this new order because of a short-term capital deficit, or do they take on short-term finance to kick-start the contract?
As a result of the new order, there would be a positive knock-on effect on cash flow, greater profitability, and the company would be in a much stronger position when looking to arrange any long-term finance. If businesses were risk-averse, the chances are they would never grow.
Akin to a situation where individuals use a short-term loan to buy a house, many businesses will use bridging loan finance in the same manner. Similar to using bridging finance to acquire new equipment while awaiting the sale of the old equipment, this type of finance is often critical when moving premises. The value of the old premises would cover the cost of the bridging, which would be repaid on disposal, allowing the new premises to be acquired as soon as possible.
In some situations, a business may be able to conditionally sell their old premises before moving out, but even then, it could be subject to unexpected delays. Therefore short-term lenders can prove extremely useful in this situation.
Expanding premises before refinancing
Some businesses may extend their existing premises rather than move to a new location. While business mortgages are very different from personal mortgages, raising finance on your business premises is possible. Consequently, using short-term finance (a bridging loan) to cover the cost of the building work will often make perfect sense. Then, once the building has been finished, it can be refinanced on the higher value; using longer-term business mortgage finance to repay the short-term debt.
Even though there would be long-term interest charges in this situation, it would be more beneficial for business cash flow. The more cash flow available for the business, the greater the eventual return, which should, in theory, be higher than the interest on a long-term business mortgage. A handy way of expanding a business!
Short-term business loans
All short-term lenders operate on the same basis; to provide short-term finance, there needs to be a degree of security. In relation to business loans, this may involve assets, or it could be based on the long-term prospects for the business. As in personal life, companies will, from time to time, require short-term finance to assist with cash flow. As we touched on above, while some people see short-term finance as a negative factor, it can often be a simple solution to a short-term challenge.
There are several reasons why a business may require short-term finance, which include:-
While business directors and owners can delay their own company payments in the face of short-term funding issues, this is not advisable for the wider workforce. Even though this may be a short-term issue, late payment of wages can lead to a whole host of problems:-
• Reduced staff morale
• Staff seeking alternative employment
• Industrial action
• Increased sickness/time off
• Disincentivise staff
Therefore, as long as you can prove this is only a short-term issue (or provide additional collateral), it is sensible for a business to seek short-term finance. In addition, rumours and counter rumours of payroll difficulties can impact a business’s reputation, often prompting supplies to become more nervous.
Negotiating the settlement terms for suppliers and customer orders is a crucial part of any business. In theory, you would negotiate an extended settlement period with your suppliers while shortening the payment period for your customers. Unfortunately, there will be times when this is not possible; perhaps your customers are struggling in the short term, or your suppliers require more prompt settlement. This can lead to short-term finance issues, which are not necessarily severe but, unless addressed, can have a negative knock-on effect on a business.
In tandem with seeking quick short-term business loans, there may be the opportunity to reduce your short-term expenses. Any way you can lessen the cash flow challenges, the quicker you will emerge from this scenario. So do not be afraid to seek short term finance!
Project start-up costs
Business is not necessary for everybody because, at some point, you will need to take a calculated risk. New project start-up costs are one of these scenarios which can challenge your concept of business and risk. However, those businesses that will prosper will often embrace these calculated risks, building a relationship with short-term lenders to cover project start-up costs. While these situations rarely go perfectly to plan, if there is enough headroom between short-term finance costs, short-term cash flow and enhanced long-term profitability, a short-term loan NZ could be the answer.
On the flipside, faced with what could be a game-changing scenario, if you fail to take on this new project or fear taking on short-term finance, your competitors will. The most successful, prosperous and profitable businesses regularly face similar challenges.
Even with the best preparation and machinery, everyday businesses will incur unexpected repair/maintenance costs. In many ways, there is no alternative but to take on short-term finance to address these issues; otherwise, capacity and profits will fall. The business world is highly competitive, and failure to fulfil contracts or maintain capacity could open the door for competitors.
Then there is the health and safety aspect. If a company fails to repair/maintain machinery which then results in an injury to an employee, they could be exposed to a significant personal injury compensation claim. Life as a business leader is not always champagne and skittles!
In the good times, many businesses will increase marketing spend, reducing this budget when economies are under pressure. When under commercial pressures, this can also be the first port of call as a means of reducing expenses. However, this short-term attitude can backfire. At a time when the business needs to grow, even though there may be short-term issues, it is imperative to continue that marketing push.
While some may see quick short term business loans to cover marketing as an unnecessary expense, you need to look at the broader picture. Let’s assume that for every dollar in marketing expenditure, you achieve five dollars in sales and two dollars in profits. This improves cash flow and profitability and will ensure that the short-term loan NZ is repaid relatively quickly. What is the alternative? Reduce marketing expenditure, leading to falling sales, cash flow pressure and reduced profits?
Many companies are exposed to volatile seasonal sales, which can impact cash in less busy times. In a perfect world, you would find two contrasting products/services which would at least partially fill the 12 months of the year. You may also consider putting some cash aside for the quieter periods of the year. This is easier said than done, and many companies will experience cash flow pressure in their “off-season”.
This is where a long-term relationship with short-term lenders can prove invaluable. Assuming your business is still profitable, you could have access to seasonally adjusted finance, in the knowledge that in your peak season, there will be a considerable improvement in net income. Managing a seasonal shortfall is second nature to many businesses where, try as they might, they can’t change consumer spending habits!
When looking at short term finance, it is essential to recognise the considerable markets in business and personal finance. While many finance companies see client situations as black-and-white, we understand the short-term difficulties and sometimes challenging credit histories. Here at Quick Loans, we prefer to build long-term relationships with our clients based on trust, security and flexibility.
As protection for all parties, we will require security with some short-term finance arrangements, but these are negotiable. Some of the more common personal short-term finance requirements include:-
Short term finance to buy a house
At face value, bridging loans appear relatively expensive regarding the interest rate charged. However, a typical bridging loan will only last a matter of days, weeks or possibly months in some scenarios. Consequently, the often relatively high annual interest rate overshadows the actual cost of this short-term finance arrangement.
A bridging loan to buy a new house requires financing to cover the sale proceeds of your existing property. Some people may suggest a quick sale of your current property before committing to a new one. In a perfect world, conditional sale and purchase dates would match, everything would run like clockwork, and there would be no need for short term finance. However, in the real world, dates can be stretched, buyers can pull out, and in many cases, a property bridging loan gives you scope to take your time and achieve the best price on your property sale.
Cash flow issues
We all have cash flow issues from time to time, whether due to redundancy, unexpected expenses or simple overspending. In this scenario, short-term lenders are available to offer help, but they may require you to trim your costs simultaneously. This is a win-win for all parties, reducing both the amount of short-term finance needed and interest charges.
If you are experiencing cash flow problems regularly, it may be time to review your overall household expenses. This can be a wake-up call for many people, prompting them to write down income, outgoings and any shortfall on paper. However, after the initial shock, it should be possible to trim expenses and, in some cases, reduce these dramatically. This strengthens your case for short term finance to assist with cash flow problems and gives you a much firmer base in the future.
In a perfect world, we would see all expenses coming wards us, put money aside, and be ready for the day. If only! All of us will, at some stage, face unexpected emergencies and unbudgeted financial outlay, which could cause problems. The easy solution would be to put some money aside in a “rainy day fund” precisely for these occasions, but again that is easier said than done.
The ongoing cost of living crisis is squeezing household budgets, reducing relative spending power with unexpected financial emergencies having an even more significant impact than before. As soon as you see potential problems on the horizon, that is the moment to look at a short term loan NZ. You are negotiating from a position of relative strength before a significant deterioration in your short-term cash flow. While not always possible, you may often suspect there could be problems ahead. Don’t bury your head in the sand!
Whether looking at business or personal short term finance, numerous options are available. Here at Quick Loans, we prefer to build long-term relationships with our clients based on trust, honesty and transparency. This makes us very different from traditional banks, where every client seems to be a number and reintroduces a similar style to your “non-judgemental bank manager” of years gone by.
Even though we are responsible lenders, requiring evidence of cash flow and security before providing finance, we are also flexible. We appreciate the changing nature of personal and business finance, the short, medium and long-term funding requirements, and the need to move quickly for various reasons. Lets talk……
by Mark Benson
Mark Benson, a renowned and astute stockbroker/financial adviser spending the majority of his finance-related career operating in the United Kingdom. With 16 years+ experience in the financial sector. he still maintains a strong interest in all things financial. Over the years, he has written about subjects such as property finance, loans, pensions, insurance, stock market investments, tax planning and more. Mark believes it is essential to keep up with the latest financial regulations and adapt your finances accordingly, something he portrays in his financial articles.