Short term finance solutions are an option for businesses where the relief measures for high fuel prices are insufficient in supporting cash flow shortages. The situation in the Middle East has created a serious crisis for many Australian businesses. The high price of fuel and supply shortages causing issues with meeting their commitments. Many transport operators may soon receive their monthly fuel bills and be left short to make the payment.

While the general public are advised to take public transport and adapt their travel plans, for business, the solution is not that simple. The reality for many businesses is on both income and costs fronts. On the outgoings side, these types of unexpected cost increases that must be met to keep the business going, may mean less funds for other bills.

While the Federal Government has implemented a plan with measures to support business and consumers, when a business fails to meet its payment obligations, the flow-on effects and outcomes can have long-term negative implications. If finance payments are not met, the risk is a loan default and in worst case situations, the assets repossessed. If supplier invoices are not paid, the risk is not being able to obtain the materials required for production.

These issues may be compounded if the customers of the business are also facing similar issues. If they can’t pay their invoices, the business is short on income and high on the cost side of the accounts. Resulting in a shortfall in cash flow which needs to be addressed.

Is waiting out the crisis an option? The current fuel scenario is being addressed by the Federal Government to shore up supply. But any easing in prices will likely be dependent on the oil markets and an ending to the Middle East conflict. When this will occur is an unknown factor. How long after that will prices normalise? It could be weeks or longer.

For businesses finding the current situation unsustainable for their operation, seeking short-term finance solutions may present a workable option. Allowing the business to meet its commitments while also dealing with increased fuel prices.

What is short term finance?

Short term finance is business financing products that are arranged over a short timeframe. Primarily, this type of credit is used to meet cash flow shortages which have occurred due to varying reasons.

To fill temporary gaps in cash flow and avoid the negative outcomes of having a poor payment record, a business does not need to commit to a long repayment term loan. Nor do they need to provide collateral to secure a loan. Most short-term finance solutions are unsecured credit facilities.

Credit may be provided to cover a wide range of expenses. These may include operational costs for the business, wages, fuel, supplies and other commitments.

Short Term Finance Credit Facilities

The most widely used form of credit to support cash flow is an Overdraft. This may also take the form of a Line of Credit. This is a flexible, versatile loan product which can be used to cover many of the regular and recurring expenses that businesses need to meet. The credit is provided with collateral, that is, it is unsecured.

Not having to provide assets to secure the finance or to nominate a specific asset to be financed is a major benefit of this type of credit. A possible negative can be that without security for the loan, lenders charge higher interest rates on unsecured compared with secured loans.

Overdrafts offer a straightforward format. The business application is assessed and the lender makes their offer for the amount of credit they will extend to that business. A timeframe may be included in the offer or it may be offered as an ongoing line credit with regular reviews.

The business then has that amount of funding available to them to use to pay their bills and expenses. Interest is calculated monthly at the per annum rate only on the amount of credit used. Rates are variable and will be subject to rate changes, most usually in line with RBA www.rba.gov.au decisions. A lender charge applies.

When cash flow returns to a normal, workable situation, the business may request that the Overdraft facility be withdrawn.

With this level of flexibility, businesses have more control over the interest that they accrue by timing their outgoings. While have the convenience and reassurance, of being able to meet their obligations and maintain a good payment record and credit rating.

Another option is to provide unencumbered assets to secure a Secured Business Loan. With collateral provided, interest rates are lower and may be fixed over a fixed term. This type of credit may be arranged over a short term of up to around 2 years to allow the business time to get their cash flow situation sorted.

With a Secured Loan over a fixed term, interest would be charged on the full amount of the loan and monthly repayments would be required. If considering this type of loan, businesses should plan how much they may need for the commitments and ensure they have sufficient income to meet the repayments.

As specialists in supporting business operators, our brokers will discuss, source and structure the most suitable solution to meet your requirements.

For short term finance solutions in the current fuel price crisis, connect with Business.Finance brokers on 1300 000 033 to discuss your options.

DISCLAIMER: THE SPECIFIC PURPOSE IN PROVIDING THIS ARTICLE IS FOR GENERAL INFORMATION ONLY. IT IS NOT INTENDED AS THE SOLE SOURCE OF FINANCIAL INFORMATION ON WHICH TO MAKE BUSINESS FINANCE DECISIONS. BUSINESS OWNERS WHO REQUIRE ADVICE OR GUIDANCE AROUND THEIR SPECIFIC FINANCIAL CIRCUMSTANCES ARE RECOMMENDED TO CONSULT WITH AN ADVISOR OR ACCOUNTANT. NO LIABILITY IS ACCEPTED IN REGARD TO ANY MISREPRESENTATIONS OR ANY ERRORS RE ANY DATA, SPECIFICS, POLICIES AND OTHER INFORMATION AS SOURCED FROM OTHERS.