What is short-term finance?
Short-term finance refers to financial solutions designed to provide immediate funding for a limited period, typically less than one year. These solutions are ideal for addressing temporary financial gaps, managing cash flow, or seizing short-term opportunities.
Key features
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- Duration: Generally, less than 24 months
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- Flexibility: Offers quick access to funds with minimal documentation
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- Purpose: Used for immediate needs such as working capital, inventory purchase, or urgent expenses
Types of short-term finance
There are several types of short-term finance available, each catering to different needs and circumstances. Here are some of the most common options:
Bridging loans
Bridging loans are a popular form of short-term finance used to “bridge” the gap between the purchase of a new property and the sale of an existing one. These loans provide immediate access to funds, allowing borrowers to secure new properties without waiting for the sale proceeds of their current properties.
Benefits of bridging loans
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- Quick access to funds: Ideal for urgent property purchases
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- Flexibility: Can be used for residential, commercial, or investment properties
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- Customisable terms: Tailored to fit the borrower’s needs and repayment capacity
Business overdrafts
A business overdraft allows companies to withdraw more money than is available in their account, up to an agreed limit. This facility helps businesses manage short-term cash flow fluctuations.
Benefits of business overdrafts
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- Ease of access: Funds are readily available when needed
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- Interest on used funds: Interest is only charged on the amount overdrawn
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- Flexibility: Can be adjusted based on the business’s financial situation
Invoice financing
Invoice financing involves selling unpaid invoices to a financier at a discount, providing immediate cash flow. This solution is particularly useful for businesses that face delays in payments from customers.
Benefits of invoice financing
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- Improved cash flow: Converts receivables into immediate cash
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- No additional debt: Not a loan, so it doesn’t add to the company’s debt
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- Quick access: Funds can be accessed quickly, often within 24 hours
Short-term business loans
Short-term business loans are designed to provide businesses with quick access to funds for specific short-term needs, such as purchasing inventory or covering unexpected expenses.
Benefits of short-term business loans
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- Fast approval: Quick processing and disbursement
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- Flexible use: Funds can be used for various business purposes
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- Manageable terms: Short repayment periods with clear terms
Personal short-term loans
Personal short-term loans are available for individuals who need immediate funds for personal expenses, such as medical bills, car repairs, or unexpected emergencies.
Benefits of personal short-term loans
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- Quick approval: Rapid processing and funding
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- No collateral: Often unsecured, requiring no collateral
- Fixed terms: Clear repayment schedule and fixed interest rates
Advantages of short-term finance
Short-term finance offers several advantages that make it an attractive option for both businesses and individuals:
Immediate access to funds
One of the primary benefits of short-term finance is the speed at which funds can be accessed. This is particularly important in situations where immediate funding is crucial, such as property purchases or emergency expenses.
Flexibility in repayment
Short-term finance solutions often come with flexible repayment terms, allowing borrowers to choose repayment schedules that suit their financial situations. This flexibility can help manage cash flow and reduce financial stress.
Less documentation
Compared to long-term loans, short-term finance typically requires less documentation and fewer approval processes. This makes it easier and quicker to obtain the necessary funds.
No long-term commitment
Short-term finance options do not require long-term commitments, making them suitable for addressing temporary financial needs without the burden of extended repayment periods.
Opportunity to seize immediate opportunities
With quick access to funds, borrowers can take advantage of immediate opportunities, such as property deals, business expansions, or urgent purchases, without waiting for long-term financing.
Use case: Bridging loans as a short-term finance solution
Consider John, an entrepreneur in Melbourne who needs to purchase a new commercial property for his expanding business. However, the sale of his current property is still pending, and he cannot wait for the sale proceeds to secure the new property. John opts for a bridging loan, a short-term finance solution, to bridge the gap between the purchase and the sale.
With the bridging loan, John quickly secures the new property, allowing his business to expand without delay. Once his current property is sold, he uses the sale proceeds to repay the bridging loan. This strategic use of short-term finance enabled John to seize a valuable opportunity and continue his business growth seamlessly.
Conclusion
Short-term finance is an invaluable tool for managing immediate financial needs and seizing opportunities without delay. Whether you are considering bridging loans, business overdrafts, invoice financing, short-term business loans, or personal short-term loans, understanding these options can help you make informed financial decisions. By leveraging the right short-term finance solution, you can address temporary financial gaps and achieve your financial goals effectively.
Learn more
For more information on how bridging loans can support your property purchases and business growth, visit Funding’s Bridging Loans page. Additionally, explore business and building loans.
