Avoiding the Pitfall of Using Short-Term Loans to Bridge Gaps in Capital

By January 30, 2020Factoring
short-term loans

Businesses need access to working capital to thrive and grow. However, there are times when working capital is low and cash flow is tight. While many businesses turn to short-term loans to overcome these obstacles, accumulated debt and impacted credit ratings can hinder growth and become big stumbling blocks on the road to long-term success.

Short-Term Loans and Recurring Issues

When businesses experience financial problems, the “go to” solution is often to use short-term loans. Short-term loans place debt on the books and lower credit ratings. Taking out short-term loans results in a portion of revenue needs to be set aside to pay off the balance. If the issue resides with cash flow or working capital reserves, it may be recurring, and taking out a short-term loan every month or every few months can create an insurmountable problem. Racking up debt from short-term loans is a common pitfall for business owners, and the cycle can flip finances upside-down.

Correcting Issues Without Relying on Short-Term Loans

Even businesses that have high sales experience issues with working capital and cash flow. One of the major reasons for cash flow and working capital issues has to do with money that is tied up elsewhere – usually unpaid receivables. Staggered payment schedules create gaps in cash flow, making it difficult for businesses to cover overhead and build up working capital. Taking out short-term loans to fill in those gaps in cash flow only exacerbates the issue, because revenue now has to cover loan payments as well as regular expenses. To reduce the need for short-term loans while improving cash flow and access to working capital, businesses use invoice factoring. Invoice factoring frees up capital tied up in unpaid receivables by turning them into cash in a single day, thus removing the gaps created by staggered payment schedules. Invoice factoring helps businesses to rightsize cash flow and working capital issues so they can avoid the pitfall of relying on short-term loans.

Single Point Capital provides best in class invoice factoring services. We provide tailored solutions and 24-hour turnaround on invoices to help businesses stay on the road to long-term success. Break out of the need for short-term loans with invoice factoring services from Single Point Capital. Contact our offices today to get started.

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