When Short-term Cash Flow is a Problem
September 19th, 2008 by Liz Fuller
In the past few months, my clients have increasingly been coming to me with concerns about cash flow. This past week in the stock market has only increased the level of anxiety about the economy. Even though experts are saying that we’ve gotten through most of the worst of it, the hard times do not appear to be over. And for the small business owner, having enough cash to buy merchandise, make payroll or pay for advertising may make the difference in keeping things afloat.
So, while I never thought I would recommend it, I have begun researching short term loan options. I wanted to be able to give my clients advice for obtaining emergency cash, and I thought I would pass it on to you.
ThinkCash is a company that offers installment loans ranging from $250 to $2500. While still substantial, the fees appear to be less than traditional cash advance companies.
While I never encourage anyone to enter into debt lightly, if you do decide that a short term loan is right for you, you might want to consider ThinkCash. Even though the fees can be 87 cents to $1 per day per every $100 borrowed, it still might be less than the fee you would pay if you bounce a check at your bank, or pay your rent or other creditor late.
Here’s some info you might find helpful in making your decision:
- Loans are from the First Bank of Delaware and subject to credit approval (although they say your credit does not have to be perfect)
- The application is completely online so you don’t have to call or fax any information
- Once you’re approved you can get the money as quickly as the next business day
- You can pay back some or all of the loan early, without any penalties and you only pay interest on the balance that is outstanding
- You can choose the date of your first payment schedule (within reason)
- You can have your payments deducted automatically from your bank account or you can mail them in yourself
Taking even a small loan is not something to do lightly. But handled intelligently, it might be the most responsible and appropriate course of action for your business.
That said, I’d be interested in hearing your own personal experiences with short term loans - what’s worked, what hasn’t and what would you do differently in the future?
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This entry was posted on Friday, September 19th, 2008 at 12:20 am and is filed under finances. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
September 19th, 2008 at 8:01 am
You are better off using a credit card. That loan is 87% to 365% interest. Um, not really a good deal. In my opinion, these types of loans should be illegal (they are the same as “payday” loans at those check cashing places). That “$1 a day” for a $100 loan means that after 100 days you owe more money in interest than the original value of the loan.
Even the most high interest rate business credit card will be 35% interest, ridiculous still but not negative amortization (where you can owe more than the loan).
~ ElizabethPW
Attorney, CFP(r)
September 19th, 2008 at 2:28 pm
Hi Elizabeth
I agree - business owners should consider the length of time that they will be borrowing the money. If they only need the money for a week or two as an emergency, they may be better off than a credit card. Otherwise the price gets pretty steep.
My assumption is that all other avenues, including credit cards have been exhausted prior to leveraging this alternative.
But again, each businessowner should take responsibility for their own finances and not get into a situation in which their debt costs more than their principal.
Thanks for clarifying.
Liz
September 19th, 2008 at 4:49 pm
I applied for a loan at my bank in order to fund an expansion of my business, but was turned down because my sales volume was too low (never mind that increasing the low sales volume was the reason I wanted the loan). So I got a business credit card instead, with a credit limit about half of what I was asking for, and financed the rest by “snowballing” profits back into the business.
A friend offered to lend me money, but I’d much rather borrow as little as possible, and especially not from friends I value as friends.
September 20th, 2008 at 8:13 am
Hi Sarah
You make an interesting point - mixing business with friendship and family can be dangerous. It’s great that they want to help - but often there are non-financial strings attached that get in the way of the relationship.
Thanks for sharing your story.
Liz