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BFS Capital Blog

4 Misconceptions of Short-Term Business Financing

January 28, 2014

There’s a new kind of business loan on the scene—a short-term business loan. Could this be the right source of capital for your business? Chances are, yes! But before you can answer the question, you need to understand a few misconceptions and take a look at the facts.

Misconception #1:

Short-term business loans are really just like bank loans.
Not so! Banks typically put out money for terms of three to 10 years. Short-term loans, on the other hand, are quick-turnaround loans, generally used to address a specific opportunity or challenge that requires capital. At BFS Capital, the money we’re lending is basically for eight to 18 months, so we’re much more interested in how your business is doing now: How are your sales trending? How is your cash flow? We want to make sure our customers’ businesses are moving in the right direction. Short-term loans are designed specifically for businesses that are solid and whose prospects for continued growth are good.

Misconception #2:

Short-term business loans provide last-ditch funds for businesses that are struggling to survive.
Actually, just the opposite is true. At BFS Capital, we’re committed to providing working capital to businesses if and only if it is in the best interest of the business. The key question: Will your business be better off after an infusion of capital (as in higher sales or a second location) than it was before? Conversely, if your business is struggling and falling behind, trying to prop it up with a loan can just prolong the problems and even cause more damage. If, after our analysis, we believe that a loan is not a good move for you, we will tell you that.

Misconception #3:

Short-term business loans require a lengthy and complicated application and approval process that can take weeks or even months.
This couldn’t be further from the truth! While bank loan applicants are often bogged down in piles of required paperwork and a long review process, those who apply for short-term financing have a very different experience. At BFS Capital, we require a comparatively simple application initially and strive to keep our underwriting process as streamlined as possible. Of course, we review key business documents like your P&L statement. But we’ll also talk to you directly. It’s our job to understand everything we can about your business model and your future growth plans. And once we approve your loan, you can have the actual funds in as few as five business days!

Misconception #4:

Short-term business loans are outrageously expensive.
It’s no secret that short-term loans are more expensive than getting a longer-term loan or line of credit from a traditional source, like a bank. But more often than not, banks require things like a spotless business record and pristine personal credit. At BFS Capital, we’re more focused on the health of your business now and the likelihood of positive growth outcomes (e.g., more revenue) that will result from the loan. We’re taking on risk, sure, but it’s risk that’s likely to pay off for the business. The old saying, You have to spend money to make money, is true. And this is how smart business owners look at the cost of short-term funding. If funding results in revenue that’s twice the cost of the loan, that’s money well spent. Or if the loan enables you to open a second location that will double your sales in the next couple of years, that’s a business investment. The cost of short-term business loans is never too high when done for the right reasons—growth or expansion—and when there is the right kind of due diligence, planning and forecasting.

Image courtesy of Vichaya Kiatying-Angsulee /