One of the hardest parts of starting your business is getting enough money. Even if you have carefully reviewed your financial statements and budget, even the best-planned financial plan can go wrong.
Many business owners who are looking for financial help when this happens turn to traditional loans. This is not always the best option, despite its popularity. Many people instead look into applying for a short term loan.
A short-term loan, according to the Corporate Financial Institute is a loan that can be used to meet a temporary financial or personal need. These loans are quick and easy to get cash for cash flow problems. They also have shorter repayment terms than traditional loans. Although the credit limit for short term loans is less than that of a line, they can be used to help with temporary financial problems.
Because they are short-term loans, they must be repaid quickly. Short-term loans for businesses are different from typical small business loans. The annual percentage rate (APR) is something you should consider before you apply for a short term loan. This directly impacts how much you will end up repaying for the loan. It is unlikely that you will get a prime rate on short-term loans. You should also consider the origination fees, other applicable charges and late payment penalties.
The Advantages Of Short-Term Loans
It is not an easy decision to decide to borrow money to fund your small business.
The Loan Amount: Once you have completed the repayment phase, and you have a track record of success, your chances of getting a longer-term, larger loan increase significantly.
There Are Strict Eligibility Requirements: The loan amounts for short-term loans are typically smaller, which makes it easier to get approved. It is also easier to get funding and approve your loan.
Repayment Period: Short-term loans should be paid back within 6 to 18 months. Short-term loans are available to help you pay off your loan in a short time.
Comparison Of The Cost Of Short-Term And Long-Term Loans: The total interest rate is one of the biggest disadvantages of short-term loans. Lenders can charge higher working capital loan interest rates because the loan term is shorter than other loans to offset the increased risk. Short-term loans can become debt traps if the borrower is unable to pay back their loan on time. If you can’t pay your loan on time, you may be required to refinance the loan. This will allow you to extend the repayment period and accrue additional interest.
Short-Term Loans Available For Businesses
There are many ways to obtain short-term loan funding.
- Merchant cash advances
- Credit lines
- Payday loans
- Invoice financing
- Overdraft agreements
- Finance of accounts receivables
- Customer advances
- You can sell goods in installments
Businesses that are temporarily short of cash have great options with short-term loans. Consider securing a loan for your business if you feel you may need immediate financial assistance.