Can I Obtain A Short Term Loan Against Assets?
Anyone can stumble upon a situation that requires additional cash. Yes, that’s right – sudden financial shortages are not exclusive to individuals. Companies, especially small and medium enterprises can experience cash drought every once in a while so a viable questions is whether they can take a short term loan against assets
What is a Short Term Loan?
When we think about a short term loan, we immediately conjure up images of people falling short of cash when payday is several days away. There are many reasons this happens: a medical emergency, a sudden but crucial auto, or a utility bill that must be settled immediately. Depending on the borrower’s capability to pay and credit score, he or she may gain quick financial relief through a loan- short term like a payday loan. But where can business owners go to when they need a short-term loan?
What is An Advance In Current Assets?
Current assets, according to Investopedia, are accounts receivables, cash or cash equivalents, stock inventory, and other liquid assets that a company used or sold in a fiscal year. Also referred to as current accounts, they are used to pay for the company’s day-to-day operating expenses. Advances in current assets occur when a company gets a loan using current assets as collateral. In Australia, businesses can obtain a loan from their accounts receivables and inventory.
How Does Short Term Asset Finance Work?
Short term assets such as accounts receivables, inventory, or cash are considered current assets. These assets can be used to obtain working capital which essential to keep a business up and running. There are various reasons why you will need additional working capital, such as:
- Fluctuations in sales: Businesses with seasonal sales fluctuations may have difficulty taking care of business expenses due to the sluggishness of sales. Having low cash is detrimental to your operations, no matter what industry you belong to.
- Cash flow is not consistent: Business cash flow can suffer when the inventory is on stock for a long time or some customers take longer to pay off their invoices. When your cash flow is not reliable, you can fall behind on your obligations such as utility bills payment or employees’ wages.
- Business growth challenges: Growing a business involves risks and challenges. You can start taking advantage of opportunities to scale your business venture when you get a short term loan or financing through advances in current assets.
What Are The Advantages and Disadvantages of Advances in Current Assets?
Advances in current assets are a form of asset finance that allows a company to use its current assets as a guarantee for borrowed money. Simply said, it is taking out a loan against items that you own. It can be compared to secured personal loans available to individual borrowers where assets such as jewellery, a car, or property are used on as collateral for the debt.
Various assets or property may be used by companies to secure a loan, such as buildings, machinery, and vehicles. In the case of small businesses, a short term loan may be granted by a loan provider against current assets such as their stock inventory or accounts receivables.
Many companies take advances in current assets to ensure the continuous operations of the business. It is an alternative to traditional bank loans since the shorter terms allow business owners to settle the debt quickly as soon as possible. Whether you are going to use a short term asset loan to buy inventory, pay suppliers and employees, or capitalize on business growth, you can enjoy the following advantages:
- Enjoy fixed interest rates
- Less tedious process compared to regular bank loans
- Debt can be easily managed because of the fixed payments
- In case the debt is not repaid, the main repercussion is the seizure of collateral and nothing more
Although asset-based financing through current asset advance offers a flexible and convenient way to borrow money to boost working capital, it also has several disadvantages:
- The amount you can borrow is based on the value of the current assets
- The assets lost in case of non-repayment may be detrimental for business operations
Some view asset-based financing as a not-so-effective method to secure business funding, especially if the goal is to obtain a long-term loan. Keep in mind that this type of borrowing may suit some types of businesses, while it may not be the best solution for others.
Are There Alternatives to Current Asset Short Term Loans?
Business owners can take advantage of various short term loans from direct lenders or loan brokers. However, the requirements for business loans may be more stringent compared to personal loans. If you are not keen on taking out an advance in current assets short term loans, these are possible alternatives:
- Installment Loans: Also known as term loans are suitable for established businesses. This type of loan may require good or fair credit standing.
- Line of Credit Loans: Available to different sizes of businesses; interest rates may vary depending on your credit score.
- Short Term Loans: A young company or startup can obtain short term financing to acquire additional working capital to grow the business. A reliable loan provider like MagicLoan can help you find the right loan- short term loan from reliable lenders for your business requirements.
- Government Loans: The Australian government regularly provides funding, grants, and support programs for eligible businesses. While the interest rates are low and terms are flexible, it may be challenging to qualify for government-backed business loans.
Every business needs continuous funding for its operations. Finding the right short term loan involves matching your needs to the qualifications of the loan.
How Can I Increase My Chances Of Term Loan Approval?
A good credit score will always be important when applying for financing. However, bad credit should not prevent you from obtaining a loan with term when you need it. Finding a reliable and honest lender who is authorised to sell short term loans with bad credit is key. But you can also increase your chances of getting a loan by doing the following:
- Understand your credit record: Getting a copy of your credit report at least once or twice a year helps you understand and improve your credit score.
- Prepare your documents: Since bad credit, short term lenders will highly rely on your financial statements as proof of your affordability, make sure you have copies ready at your disposal.
- Provide correct information: Supplying personal and banking details that are incomplete or inaccurate will negatively impact your loan application. Being honest with your lender is better than providing half-truths.
When Is It Not A Good Idea To Get A Loan- Short Term?
Short term loans are not designed to fix looming financial difficulties. If you are struggling financially, it is best to reach out to a credit counsellor who can provide valuable advice on how to manage debt. Borrowing small amounts of cash to patch gaps on your budget regularly may be caused by an underlying problem.
How Can I Use My No Credit Check Short-Term Loan To My Advantage?
If you were granted a short term loan despite your bad credit to some lenders, consider yourself lucky. Although modern lenders will try their best to accommodate borrowers with varying situations and circumstances, no credit check short term loans are not in any way guaranteed personal loans. The loan provider or lenders will still assess your qualifications but will focus less on your credit record or financial history.
With short term loans with no credit checks, you can:
- Handle your financial emergencies immediately
- Rebuild your credit with on-time payments
- Obtain a loan with better rates in the future
Remitting payments on time will help improve your credit score. Failing to pay your debt based on your agreed terms can result in a lower credit score and legal complications.
MagicLoan can help you get the short term loan with no credit check that you need with less waiting time – reach out to us today!