2020 has been a year of surprises. For businesses, the disparity is glaring. It’s either you’ve lost demand for your products and services or demand has never been better for essential goods like food and beverage, medical supplies and equipment, personal care and hygiene items, and the like.For Small to Medium Enterprises (SMEs) in these essential industries mentioned however, it’s been a COVID-19 season of numerous cash flow spikes that are brought upon by high and fast demand. Despite the stress it causes us, small business owners have to remind themselves that it’s a good thing.
For those in the transport and logistics industry, the typical 2-month seasonal spikes have taken on a new meaning. For one, hospitals are placing regular bulk orders for medical supplies and equipment. Supermarket traders and manufacturers are most likely calling your business sporadically as well for sudden bulk orders from their retail clients.
If you happen to transport goods yourself, you may be experiencing double the stress especially when you’re strapped for cash because you extend long payment terms with customers and need to cover costs of projects upfront—ASAP!
Don’t delay growth and opportunity
For starters, you have to ensure that your business is running well and your operations are fluid; meaning there are no barriers, you’ve got capital to pay your employees’ salaries, maintaining your assets like trucks and equipment, and covering required costs upfront.
It’s also important to note that not all business transactions are perfect and it may be normal for many SMEs to experience delays for which you have a canned response to your customers that begins with an apology and explains the reason for delay that cites external reasons that are beyond your business’ control, then promising to do better on their next order. We’ve all received that templated response before and truth of the matter is, unforeseen events do happen that delay operations and deliveries.
If you think you’re maintaining your customer retention rate “just okay,” then don’t let a few more delays cause a wrinkle in your business as usual procedures. Just be ready to bear the brunt of your customers’ wrath:
- A declining brand reputation
- Bad Facebook reviews due to a delayed delivery.
- A surge of customer complaint calls
- Customer churn
- Lower revenues
Customers, especially your B2B customers, would understand this the most as we’ve all experienced barriers to our supply chains, but wouldn’t you want your business to be one of the few, top businesses who tend to make good on deliveries at least 90 percent of the time? This is the best way to get your customers’ trust and retain loyal customers. If you’re making most of your deliveries on time then you’ll get the opposite of the list above:
- Increased positive brand reputation among your customers and peers
- Great social media raves and reviews
- Being a reliable long-term partner to your customers which may result in possible referrals
- Uptick in customers
- Higher revenues
Other worthy reasons for you to get business financing:
- Say yes to unexpected orders or seasonal demands
- Cover operational expenses like fuel, payroll, warehousing expenses, subcontracting fees to third party suppliers, etc.
- Buy more inventory or raw materials
- Increase your assets or your truck/ delivery vehicle fleet.
- Improve your operations management without the burden of daily stress
It’s necessary to fulfill these tasks while waiting for your buyer to pay or recover cash from other receivables.
Learn more about ways to manage your business here.
Short-term business financing for cash flow gaps
The benefits of fixing your cash flow gaps through short-term business loans are too good to pass up on. It gives you the fastest, most convenient, and strategic route to a fluid operations or supply chain management and will impact the speed of your business’ growth.In a nutshell, it would give your business an edge over your competitors. In an industry where speed and reliability are key, solidifying your competitive advantage through short-term business financing would be your best option.
Why short-term business financing for transportation and logistics?
Short-term financing is just what your business needs for the things you need accomplished as it should only cover advances you need or projects you need financed on a momentary basis. It will not disrupt your financing model or bore a hole in your long-term financing and business growth plans. This is because you’re expected to pay as soon as you’ve been repaid by your buyer. You won’t be tied to interest fees for years on end.
The basic definition of short-term business loans is it is a type of financing in which the principal and the interest is repaid within six months to a year. It’s typically used to fund operating expenses or working capital requirements.
Four Main Types of Short-term Business Loans
1. Credit Line
A credit line can be extended by banks and private firms like online lending companies to borrowers who need regular financing, mainly caused by frequent seasonal spikes. It basically provides easy access to capital. SMEs can utilise this at their own convenience or whenever they need it. Depending on the type of credit line you choose, the approved loan amount may or may not reset once you’ve paid the amount you took out.
It’s good to note that short-term loans can be categorised mainly under collateral and non-collateral loans.
- Collateral - loans that require the borrower to provide property or assets in the form of securities; usually loans given by banks.
- Non-collateral - loans that do not require collateral and ask for other documents to prove a borrower is good for the loan
To learn more about the difference between collateral and non-collateral loans click here.
2. Purchase Order Financing
This is usually recommended for businesses who encounter cash flow problems due to unforeseen circumstances and don’t have cash to fund an incoming order. Sometimes orders are just too large but you want to be able to fulfill these orders anyway and submitting a purchase order (PO) to a lending firm that has this product will do the trick.
Just note that PO financing can still be quite risky if your backend operations is not ready to take on such a large order that you may not be able to fulfill the huge task at hand. This might cause complications to your delivery output that might delay the buyer from paying eventually.
To learn more about PO Financing click here.
3. Invoice Financing
This allows you to become a more reliable partner to your buyers. It also allows you to turn collectibles into cash instantly and pay for your ongoing operational costs and payroll.
Invoice financing merely serves as a bridge between the gap in your finances or while you’re waiting to get paid by buyers but have new orders you need to fund or other operational needs to pay for. It gives you the funds you need before collection day comes. This would come in handy especially for businesses who have long payment terms with their buyers (60-120 days).
Learn more about Invoice Financing here.
Advantages of online short-term business loans:
- Fast and convenient application. You can apply and get your loan approval from right where you are.
- Remedy cash flow gaps in no time.
- You get quick operational and working capital solutions that won’t create a bigger problem in the long term. The idea is, you’re just borrowing money while you haven’t been paid yet so you’re sure you’ll be able to make good on your repayment to the lending firm.
Best for: temporary business needs that won’t run beyond a year.
4. Amortising Loan Program
The Amortising Loans Program or ALP is First Circle’s new product. The ALP offers the best-value short-term business loan in the market to date. Qualifying for it, would depend on the nature of your business and the types of orders or the specific need for financing, and payment terms you have.
This is by far the most custom-fit product that we can offer that gives borrowers control over their installment payment schedule. You can pay weekly or monthly, which benefits the health of your cash flow in the long run as you get to repay early, even securing an interest rebate should you do. So if you need help specifically with the following, the ALP may just be right for your business:
- Need to meet upcoming expenses - like payroll, taxes and projects
- Slow payment from customers
- Seasonal sales spikes
- Growing faster than cash is coming in
Tips before applying for a short-term business loan
What not to do:
- Use the approved loan for purposes other than the reason you applied for. It’s too risky to use it for a long-term expense that will disrupt your repayment behaviour.
- Ensure that you’re not covering a risky business deal (i.e. an unknown face shield supplier with a bulk order that’s too good to be true)
What to do:
- Research on the product and firm you’ll be taking out a loan from.
- Do a cost-benefit analysis on the specific type of loan you’ll be getting.
- Practice good repayment behaviour by setting aside funds weekly/monthly to save up on late fees.
First Circle specialises in short-term business loans that are designed for SMEs who are in need of funding to address working capital gaps.
Need a short-term loan today? Create an account with First Circle by clicking here.
Looking for related stories on how Filipino SMEs overcame cashflow challenges? Read about the inspiring journey of 6 entrepreneurs here.