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Getting a short-term loan to help

Operating a business is expensive. Many people realize the costs that go into beginning a business, which can include such things as licensing and other fees required to make your business legal, costs for equipment and other start-up necessities, marketing and advertising costs, and many others. But in addition to that, sometimes money is needed immediately for a short term to cover other expenses.

These expenses can be difficult to cover if you don't have a consistent, positive cash flow yet or if you are just starting out but can't afford to cover all of them. If this is the case and you don't want to wait any longer to begin your business until you have saved up some money, there are several types of funding options available for financing.

One of these options is a short-term loan. These are typically used for just a few months to provide money for new equipment or to provide working capital during a busy period of time. This is a common type of loan for small businesses.

It is not always easy to get a short-term loan, however. The following are some things a lender will take into consideration:

- Collateral. A lender will want to know what kind of collateral you can provide before lending you money. Established businesses usually won't have a problem with this, as they can offer property, accounts receivable, or different kinds of equipment when applying for a secured loan. If you are applying for a short-term unsecured loan and your small business does not yet have anything to offer as collateral, collateral falls to the responsibility of the owners, in which case they may offer their homes, savings, or other things. Keep in mind that this is quite a risk to take, so make sure you are prepared to accept the ramifications should you be unable to pay back the loan.
- Credit history. Lenders will pay special attention to your credit history as well. This is similar to looking at the credit of someone who is applying for a home mortgage. Negatives or collections on your credit score may make it impossible for you to get a short-term loan, so make sure your credit history is up to par before going through the application process.

In addition to the above main considerations, a lender will also look at the following:

- Financial statements for at least three years
- Tax returns for the past three years
- Collateral you will be able provide, either individually or through your business
- Incorporation papers, if your business has been incorporated
- A personal guarantee for short-term loans, a new business
- Your credit report
- Your business plan

Typically, credit reports and business plans are looked at more closely for businesses that are not yet established or who don't have any working capital. A business plan, if you don't have one already, will be key in securing any type of loan, whether short-term or start-up. A detailed business plan will be able to tell a lender what they can expect in terms of finance and feasibility within the next few years.

A short-term loan is a good option for companies or small businesses that are in a financial crunch and could use a loan for a short period of time. Getting a short-term loan and repaying it quickly makes good financial sense for businesses as it opens the door for other opportunities down the road when longer loans of larger amounts are needed.

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