As a small or medium sized business, there are plenty of reasons to take out a business loan. For example, short-term loans can be used to:
1. Expand your business
When sales start going through the roof, there’s only one thing to do: expand. However, not all small businesses have the working capital to grow when they need to. By taking out a short or medium-term loan, you can expand to take advantage of business opportunities and repay when your revenues rise as a result.
2. Strengthen Your Credit Rating
You’re in business for the long-haul, so building a credit rating is essential. However, you can’t build a reputation for credit-worthiness without taking out loans along the way. Short-term business loans are a good way to develop your credit rating at a manageable pace.
At Bitbond, successfully repaying short-term loans is a good way to build a reputation with lenders on the platform, allowing you to move onto larger loans as your business expands.
3. Deal With the Ups and Downs of the Sales Cycle
Many online businesses experience seasonal ups and downs in the sales cycle and when revenues fall for a couple of months, this can lead to a cashflow crisis. In that case, you might organize a flash sale to raise cash fast. However, dropping prices dramatically can actually result in bigger losses than the cost of the interest on a short-term loan, so borrowing can make more sense.
Businesses may also need to access credit quickly to cater for seasonal demand. Gift card sellers preparing for Valentine’s Day and apparel firms stocking up during a cold snap are good examples.
4. Pay Suppliers and Fill Customer Orders
Sometimes, income and outgoings don’t match up. You might know that a client will pay you within a month, but a bill to your supplier could be due in a few days. In that case, taking out a short-term loan allows you to pay your bill and serve your client at the same time.
5. Deal With Short-Term Emergencies
Loans are also a way to deal with one-off emergencies that can afflict any business. If your generator stops, the oven breaks down or your company car won’t start, short-term finance provides the ability to fund repairs and replacements, keeping your operations going.
Is A Short Term Business Loan The Right Option?
There are plenty of situations in which a short-term loan can benefit SMEs, but looking to external financing is not always the right solution.
Loans are appropriate for businesses with a solid financial base and an expectation of growth. If you can generate sales and need to boost your inventory or marketing, loans are a good option, but the reverse applies if you are losing money.
If you are losing money, other aspects of the business need to be addressed before you take out external financing. You probably need to assess your core markets and products and find a way to generate revenues. Without that foundation, loans come with an extremely high level of risk.
The most important question to ask is, can you afford the loan? Failing to repay a business loan can be a huge burden in the future when it comes to applying for fresh loans, as it can have a huge credit impact.
If you do choose to take out a loan, there are other factors to consider before completing the application.
Look at the cost of the loan over the term that you will take it out. The APR is the most obvious figure to think about, but always ensure that you know about any additional fees that the lender imposes. And never lose sight of the total monetary cost of the loan.
How do you want to repay the loan?
You can choose from amortizing loans, bullet loans or credit lines. Credit lines are the most flexible, but usually cost more. Bullet loans defer repayment until a later date, but require discipline until the payment becomes due.
If you think that your revenues will increase rapidly as a result of taking out the loan, be sure to choose a lender that allows flexible repayment schedules. If you can pay the loan off when you can afford it, without having to pay interest for the entire term, you will save money, so check that your lender is flexible before signing.
How quickly do you need the money?
Conventional banks generally take a few weeks to approve a business loan, but many peer-to-peer lenders can provide you with credit in just a few hours. This can make or break online businesses who need to act fast.
What will you do if something goes wrong?
All borrowers should have a Plan B to fall back on if their revenues dip and they still need to meet their loan obligations. This could include setting aside a fund to cover emergency repayments, or being able to liquidate stock to raise the money
When everything has been taken into consideration, a short-term business loan could well be the ideal choice for your company. However, it makes sense to shop around to find exactly the right lender for your circumstances and needs.
The Problem With Banks
You might think that the best way to secure short-term credit is to reach out to familiar banks, but you’d be wrong.
The financial system is broken. The refusal of major banks to lend has created a $2 trillion funding gap between what SMEs need and what conventional banks are willing or able to lend.
For many small businesses this has meant rejection and despair. A US study of 1000 SMEs found that only 20% of online firms were approved for loans from mainstream banks. The UK government reports that 50% of first time SME borrowers are refused.
Meanwhile, in the developing world, 70% of SMEs don’t even seek external finance due to the obstacles in their way. They badly need an alternative.Conventional banks aren’t set up to lend to online businesses.
They don’t check eBay seller histories or PayPal accounts. They prefer to deal with major clients and avoid small fry. Since the financial crash of 2008, they have also become less willing to lend to businesses with shaky credit scores and inconsistent cash flows.
A Fresh Alternative to Conventional Banking
Many SMEs are turning to alternative sources of credit when they want to expand. P2P lenders like Bitbond have emerged to serve the millions of online businesses that are desperate for credit but poorly served by the major banks.
Bitbond offers a radical alternative to conventional banks and equity-backed or crowdfunded online lenders. Here’s why:
- Focused on Online Sellers
Bitbond’s short-term loans are tailored to the world of online selling. eBay alone has around 7 million sellers who make a living from the platform. To these can be added sellers on other platforms like Etsy, and the more than 100,000 businesses who use Shopify to power their online stores. Despite this, conventional banks usually don’t include eBay or PayPal histories in their credit assessments. Bitbond do, giving online merchants a fairer chance to secure credit.
- Efficient and Fast
The P2P lending model used by Bitbond is extremely efficient. Borrowers can quickly set up an account, be assessed by our team and access credit from our pool of lenders. Our interest rates are as low as 7.7%, and we keep fees to minimum thanks to the use of Bitcoins to fund our loans.
- Online Credit with Global Reach
By using Bitcoins as the basis for our lending, Bitbond offers a truly global service. Online selling is often international in scope, but banks and other credit providers are usually focused on their local market. We can provide credit almost anywhere in the world, without having to deal with the transaction costs of cross-border currency exchange.
- Signing Up is Simple
The process of applying for a loan with Bitbond is simple. Just sign-up, become approved, request a loan and get funded – it’s as easy as that.
How Does Bitbond Assess Borrowers?
Any lender has to assess borrowers before disbursing loans. That’s just a fact of life. However, there are many different ways to carry out loan assessments.
Banks can be intrusive and slow when approving a loan. The whole process can seem like torture when you really need working capital to fund your small business.
With Bitbond, it’s not like that.
- When you sign up as a borrower, we ask for access to one or more of your online selling accounts, such as eBay or Etsy, or you can use accounts from online payment platforms like PayPal.
- After you have granted us access, we use the information from your accounts to assess your financial circumstances and credit worthiness. The more information you provide the better, as it means that your trustworthiness will improve, making credit more accessible and lowering the interest rates you are charged.
- We provide all borrowers with a credit rating (from A to F) within hours of signing up. This rating is displayed alongside your projects and can be quickly revised to reflect changing circumstances.
Borrowing from Bitbond – Our Terms
Bitbond provides access to small business loans of up to $10,000 in value.
You can schedule your loan over terms of between six weeks and five years – meaning that you can access extremely short, medium or long-term loans whenever they are needed.
Whenever you take out a loan, you can discuss your needs with your own Personal Loan Manager. They will guide you through the application process and work out a repayment schedule that works for you.
Our service is as flexible as possible. Borrowers can repay their loans at whatever pace is convenient for them. If you want to pay the amount off quickly, you will only be charged interest for the time that the loan remains in your account. After you’ve finished repaying, you can instantly take out a replacement loan if necessary.
Join the Community of Bitcoin Borrowers
P2P Bitcoin based lending is growing rapidly. As the online currency becomes more popular and accepted, more and more businesses are taking advantage of its benefits to secure short-term credit, and you can do the same.
At Bitbond, our lending has grown from virtually nothing in 2014 to $450,000 in 2016. We now have over 28,000 users on our credit marketplace, and have originated thousands of loans, with more projects coming online all the time.
We represent the future of online business financing. With no ties to the banks, we are not dependent upon them to finance our activity. Instead, we leverage the power of Bitcoin to provide credit across the world, whenever it is needed.
If your firm needs working capital to expand or stock up your inventory, sign up for a Bitbond account now and explore what P2P lending can do for your business prospects.