About Federal Short-Term Loans

To spur investment in the Depression era, the federal government bought short-term I.O.U.s that companies could issue to finance day-to-day operations. By purchasing short-term debt, the government hoped to help heal the credit crisis at the time. The result was anticipated to be lower rates and increased credit availability. The federal government may also insure lines of credit with banks, helping you feel safer about your investments in the U.S. economy with near risk-free investing.

How much money do you need to start, continue or grow your business? The answer lies in a calculation of additional funds needed. Additional funds needed is the gap remaining between the financial capital needed and that funded by spontaneously generated funds (increases in accounts payable and accruals that come with sales increases) and retained earnings. This calculation focuses on determining the total funding gap, helping you decide whether you should try to secure more debt or equity to finance your future needs.

There are many options for short-term loans, some for student loans, some for business operations. For business loans, take a look at the options at the U.S. Small Business Administration (SBA) website. One example is the Basic 7(a) Loan Guaranty, which helps qualified small businesses obtain financing for working capital when normal channels may not have worked. Another option is a CAPLines loan, which finances the short-term and cyclical working capital needs, including seasonal, contract, builders, standard asset-based and small asset-based lines of credit. For student loans, ask your school guidance counselor or career center for grant and scholarship applications. You should also apply for financial aid via the Free Application for Federal Student Aid (FAFSA).

A short-term loan can be secured much faster than long-term credit. Lenders will often require a more thorough financial examination before they will give you long-term credit (remember back to your home loan process). A lot can happen in a 10-year or longer loan term. Also, interest rates are generally lower on short-term debt. Thus---all else equal---interest costs at the time of signing your paperwork will be lower than if you borrow on a long-term basis.

The availability of SBA funds is contingent on external factors just like your business. The SBA must rely on other agencies to help determine the level of risk the SBA is willing to take on with new loans. Congressional mandates may either increase or decrease the availability of funds or programs. Also, economic factors such as inflation, sector changes, growth or unemployment rates and even the availability of capital, can impact SBA service on your behalf. Make sure that you consider multiple funding sources.