The phrase “Short-Term Loan” can often bring up a reference to borrowing money from friends or family but they are still a legitimate option to resolve financial difficulties using respected vendors. While most business owners can benefit from short-term, medium-term, and long-term loans (be it from a bank of a loan provider), the first ones are reserved for small establishments and newly founded companies.
Yes, big enterprises can safely take out a huge loan over a decade of payment period but individuals and local businesses often don’t need such a big sum to keep them afloat. Short-term loans are usually used at the beginning of your chosen endeavor or in cases of seasonal work. Stocking up your physical/online shop before a holiday can need a financial boost but you can determine how quickly it can be repaid. Short-term loans require a certain amount of knowledge – both of your own business and the conditions under you will be asked to pay off the loan.
Most short-term loans tend to keep their repayment cap at one year at most. A respectable percentage of those are available for under twelve months of payouts, and this makes them quite a suitable pick for unexpected bumps along the way of our empire creation. The most common timeframe of short-term loans is set between 90 and 120 days.
An instant need of refinancing a business couldn’t come much easier than with those type of loans. In addition to that, the faster we repay what’s owed, the less interest we accumulate. And while long-term loans can carry a seemingly low-interest rate over years of time, short-term ones are guaranteed to swiftly come and go.
What more do you need to know?
As we have briefly mentioned, getting your hands on a short-term loan is situational, especially when it comes to seasonal businesses. If your company relies on purchase/service spikes during a certain time of the year, some refinancing injections may be more than welcome to increase your overall revenue in the long run. Yes, even if it is a short-term loan, it will affect the bigger picture, too. Having a stocked storage space week /months before a timeline event – Easter, Christmas, Summer Break, New Years – is not only handy but eliminates the need to turn back customers due to out-of-stock items list.
On another note, small business owners can sometimes struggle with payroll expenses and other utility bills they face. Short-term loans come to the rescue again as they are easy to attain and don’t cost you that much when repaying them. Even in cases where we have the money aligned from pending customer transactions, it can be better for everyone in the company to just take a short-term loan and pay it off immediately after our funds reach the bank account.
Furthermore, short-term loans can be quite simply used to cover personal financial deeds. Do you have some bills piling up? Or do you need to buy presents for a bigger family gathering? Is your credit balance is on the breach of going bad? All of those can be handled by a short-term loan. The important thing to keep in mind is the set period of those loans. Quick repayment means fewer nerves to deal with but going overdue can result in much higher interest rates than expected.
If you want to qualify for a short-term loan, you will be pleased to see that the requirements here aren’t so harsh. Of course, the usual is present – we need to be ready to share some essential financial information to the lender, be it a bank or a dedicated loan vendor. Payment history records, ongoing loans at other establishments, cash flow company history, and an income statement to prove that we are capable of paying off the loan.
Another thing to add is the different security types of the short-term loan – collateral makes it easier to acquire the loan but we can go without one, too. Unsecured short-term loans are harder to grasp but a simple signature can change that. Along with our intention to keep if professional and conduct loan transactions regularly.
As goes for interest rates, short-terms are (understandably) coming with higher interest rates than long-term ones. This, however, is a statistic regarding a normal economy state. In times of recession, short-terms can beat long-term loans when we discuss interest rates. Here, we have a main interest rate fee along with a premium amount to be paid off. The latter is calculated based on your credit history and business type (if applicable). The higher the risk for the lender, the bigger the premium will get. Simple math.
Different loan providers offer varying interest rates on their short-term loans so it is best to discuss them thoroughly with them before signing anything. Every loan officer will be more than glad to inform you of the various approaches to calculating interest rates so make sure to gain as much of this knowledge as possible.
Short-term loans pack some serious benefits to their nature. A swift distribution of money stands on top of the list as it gives us the needed freedom to pursue our projects without having to save up and start anew. They can also be acquired without geographical restrictions (in most cases) which grants an additional level of freedom when resolving our financial issues.
What is more, the requirements to gain a short-term loan are way less tough compared to long-term ones. Minimum amounts of background information and collateral needed turn short-term loans into a quick solution for many small businesses without much hassle. Especially for confident, sensible owners, those type of loans can earn you the needed feel of security without sacrificing the productivity of your business.
Same-day Approvals are another trick up the short-term loans’ sleeve. And maybe the most crucial one, as smaller sums are usually needed right away to deal with financial trouble. With an approval period of less than a day, short-term loans are leading the way when it comes to reaction times.