About Federal Short Term Loans
Federal short-term loans come in a variety of different packages ranging from student loans to those which help finance small businesses. A federal short-term loan is that which is under 10 years of maturity and which has been approved by Congress for funding by the federal government. There are many factors which must be considered on which type of loan you decide to take and whether or not it is appropriate for your situation.
Small businesses often have a hard time finding available credit for day-to-day operations. During the Depression the Federal government purchased short-term notes from companies who were unable to obtain credit. By purchasing short-term debt the government offset the shrinking credit pool provided by small and large banking institutions. This had the dramatic effect of increasing available credit to businesses while lowering overall interest rates. The Federal government will also offer short-term loans to financial institutions for similar daily operational expenses which helps keep credit flowing to consumers.
Many small businesses with tight cash flows often need a short-term federal loan to hold them over until customers or vendors pay for services or product. The amount additional funds needed for operations can be calculated by finding the difference between how much operating funding is needed and how much is spontaneously generated from Accounts Payable, Accruals and Retained Earnings. The total funding gap is a clear indication of whether or not you'll be able to pay outstanding obligations and how much additional credit may be necessary.
As stated earlier, the Federal government offers many different types of short term loans. Federal student loans, which can be applied for using the Free Application for Federal Student Aid or FAFSA, often have 10 year or less obligations and must be used for educational purposes. The Small Business Administration offers a Basic 7(a) Loan Guaranty which can provide working capital financing for qualified small businesses. Another example is called the CAPLines Loan which is used to finance cyclical working capital needs and other short-term obligations including seasonal labor and standard asset-based and small asset-based lines of credit. The key is to familiarize yourself with the various loan options available then apply for the appropriate loan.
A couple of benefits for federal short-term loans are that they tend to have better interest rates than longer-term loan obligations regardless of whether it's for business, education or a home purchase. These types of loans also tend to be for smaller amounts which can hopefully lead to less stringent requirements for loan approval. That's not to say anyone can get a short-term loan but that it may be easier to qualify for due to the lower amount and the shortened length of time.
While financial institutions often set aside a certain amount of working capital to bu used for short-term and long-term loans, the federal government changes, through congressional mandate, their amount allocated annually. Institutions which are able to issue SBA loans have certain requirements which must be met before issuing the loan. Because of this short-term loan variability it pays to be tenacious and check with multiple lenders throughout the year. The key to obtaining federal short-term loans is to use all available resources for both private and public institutions as these multiple sources of funding will have different availability and terms associated with the loans.
