How To Fill the Gap in Short Term Finance Applications

A small business is in constant need of short term loans to grow its operations. Most businesses start with less capital and gradually build assets over a period of time. However, business opportunities come in a flash and to convert them into meaningful profits, the promoters need to exhibit astute thinking and a bit of courage. Therefore, most business needs are immediate in nature and can be met through short term financing.

Unfortunately, banks and other traditional non-banking finance companies (NBFC) have not been able to keep pace with the short term financing needs of SMEs and still follow archaic rules when it comes to processing applications for short term loans. They require a business to be in operation for a considerable period of time, have a high degree of creditworthiness, have good solid business receivables in place and show consistent profitability. On top of this, most of these lending institutions would still demand collateral to ensure minimum risk in case of default in a term loan.
 
However, new small businesses do not meet most of these conditions and remain in constant need of short term financing. According to a report by International Finance Corporation, there is a global shortfall of more than two trillion dollars in short term loans provided to SMEs. This is a huge gap to cover and calls for drastic reforms in the way a term loan is disbursed. 

The traditional sources of short term loans such as banks and other NBFCs have not been able to transform their loan disbursal mechanism. Most do not want to take the risks associated with short term financing. 

How Fintech companies help bridge the short term financing gap

New-age FinTech companies use the best of technology to provide short term loans online to SMEs who otherwise face a lot of challenges to obtain short term financing. Most small businesses do not have sufficient collateral to take secured shortterm loans from banks and other traditional financial institutions. So, unsecured short term loans serve their needs the best. Also, they need such a term loan in the shortest possible time so as to keep their businesses adequately funded to meet their short term working capital needs. 

To match this requirement, Fintech lenders provide innovative short term financing products to SMEs. Different SMEs have different needs for a term loan and therefore the short term loans online provided by Fintech lenders are designed to take care of those varying needs. 

Most SMEs do not get the desired term loan from banks; and even if they manage to, it is provided as a percentage of the collateral. Mostly, a small business does not get the complete amount for which the term loan application has been made. So, how does it make up for the shortfall in funds? With new-age Fintech lenders, the chances of getting short term loans online for a higher amount are better. You as an SME, just need to convince them about your business prospects and creditworthiness when applying for short term financing. 

Also, unlike banks and other traditional financial institutions, bank statements and the records of business receivables demanded by Fintech lenders are for a shorter period of time. There are certain things that a small business could do on its part to improve its chances for getting short term loans online quickly and also to get the right financial product that best suits its business needs. 
Prepare your business plan thoroughly

Before applying for short term financing you have to convince the lender as to why you need it in the first place. You should have a well-defined business strategy to explain the nature of your business, where you expect to rake in profits from, your past and future business receivables, your previous loan record and so on. For instance, if you want a loan to purchase machinery, convince them that the funds shall be used only for that purpose. Likewise, if you want money to pay salaries or your suppliers, inform the lender upfront. 
You may also explain the seasonal nature of your business if required, and how you manage to keep the business running during lean periods. A Fintech lender does not require any collateral for disbursing short term loans. However, they want to be reasonably sure about your business background and the diligence you apply to your business planning.

Estimate the right amount of funds required

While applying for short term financing, always keep in mind the risks involved and the impact a loan can have on the bottom line. Also, keep in mind that you need to repay your instalments on time — so apply for just the right amount. This would help improve your creditworthiness and also make you eligible for more loans in future should the need arise. Therefore, meticulously calculate the amount required for a loan and take into account all the risks your business can face in future, your outstanding liabilities, cash flow situation, current assets and business receivables.

Also, prepare a plan for repayment of the loan in advance, based on the profits you are expecting to make. A well-planned loan application would show the genuineness of your need and your ability to manage money, and thus improve your standing in the eyes of the lender.

Choose the right product online

New-age Fintech lenders have the best technology platforms and provide the most innovative products when it comes to offering shortterm loans to an SME. For instance, if an SME has outstanding invoice receivables, it might as well choose supply chain finance over a term loan. This way it shall be able to reduce the total cost of a loan drastically. 

On the other hand, a retailer who does not have assets in invoices and does not want to commit to a fixed repayment schedule could go for a merchant cash advance. It allows them to repay the loan as a percentage of sales through card payment machines while still enjoying the immediate availability of cash for their short term financing need. Similarly, a merchant who is very active on online marketplaces could go for online seller finance which provides customised finance to meet their business needs.

You can also apply for bike finance at an attractive price in case if you are looking for.