As a start-up business working to get a good grip on the market, there is a high risk of running out of capital. The risk emanates from too many cost elements during start-up coupled with the sluggish generation of returns. For example, you might spend lots of money on advertisements, but your sales turnover might be too slow to match the rate at which you are spending. This is where short-term debts come in handy. These debts are a borrowed source of finance lasting for a year or less. They will help your business expand and improve its liquidity level, enabling your firm to meet its obligations whenever they fall due. Here are a few short-term debt alternatives that you can use for your operations:
Trade credit is a form of short-term debt arranged with your suppliers, wholesalers or manufacturers. It is an agreement with the supplier or wholesaler to give you the product that you need, sell it for a certain period and then pay them on a pre-determined date in the future. By doing this, the creditor allows you to retain liquid cash in the firm, cash you'd have otherwise used to pay for the goods in that instance. Creditors vary their terms to suit their businesses. You should look out for suppliers with favourable trade credit terms before entering into an agreement with them. Discounts on any early payment and zero interest charges on the price of goods are some of the favourable credit terms that you should go for.
A bridge loan refers to money that you borrow for a short period to help you cater for some expenses before you receive a certain income. Bridge loans are a lifesaver because they help you maintain the goodwill and reputation of your business. For instance, if a debtor fails to remit money that he or she owes you, it can affect your business adversely. Therefore, you can approach a bank for a bridge loan to meet essential expenses such as power bills and employee wages and then pay back the amount as soon as your expected income arrives.
Credit Card Charges
Does your business have a bank account used to receive or pay money regularly? Good! You can use such an account to access a planned bank overdraft. This a borrowing facility that allows you to withdraw funds from your bank account below zero. However, it's best to keep the repayment period very short because most overdrafts attract interests and daily charges.