There are 27.9 million small businesses in the United States. Many of them know that budget constraints play a major role in how they run their businesses.
Many businesses turn to loans in order to ensure that they have enough money to keep their company afloat. Some of them turn to short-term loans.
But what is a short-term loan? In this article, we’ll go over a few times of short-term loans you can get for your business to get you to your goals as fast as humanly possible!
What is a Short-Term Loan?
While there are many types of short-term loans, they all have one thing in common: they’re paid off as quickly as possible.
Short-term loans typically give quick payouts, but that isn’t why they’re dubbed “short-term loans.” Instead, they’re called that because the terms of the loan are shorter. With long-term loans, you may be able to pay back the loan on your own time or in a matter of years. A short-term loan usually requires the money back in less than 18 months.
Some short-term loans may require that you have the money back to the lender in just six months.
This means that while it can help with a dire financial situation, you should be in a position to pay the lender back before the funds are due.
There are also short-term loans that require you to pay off the loan every day until it is paid off. This type of short-term loan may not have a repayment period, but will instead require you pay a certain amount of money every day for a year or two.
Why Do Some Businesses Choose Short-Term Loans?
Thus far, what we’ve laid out about short-term loans may make them seem scary. But there are a myriad of reasons as to why people will decide to choose them over long-term loans.
Some of the perks include a quicker timetable for you to get your cash, less thorough background checks and lower rates of interest.
In the next few sections, we’ll discuss these in depth.
You Get Access to Your Funds Quickly
One of the biggest perks of a short-term loan is that you get your money a lot more quickly. Long-term loans may require a more thorough background check on you or your business. As such, it can take longer for you to get your money.
There are some short-term loans that you can get access to in as little as 24 hours. This is a perfect way to get cash quickly if your business needs it to complete a project or get something ready for a special event. With a short-term loan, you’re not stuck waiting in limbo for your cash. Instead, you get it and can spend it to complete your projects as quickly as possible.
There Isn’t a Thorough Background Check
To get traditional personal or business loans, you may have to go through several hoops. These hoops may require you to have good credit and for your business to have good credit as well. They may also require your business to have been in operation for a certain amount of time and have an annual turnover of a certain amount of money.
For smaller businesses, especially those dealing with start-up costs, this simply isn’t possible. And they need money in order to keep buoying their business until they get to a point with a better FICO score and they turn over more money.
Short-term loans are a bit like payday loans, in that there isn’t as much of a background check involved. Typically, there will be some underwriting, but it won’t be very strict. You may need to meet some criteria, but your annual turnover does not need to be as much.
You may also need to have been in business for a certain amount of time, but it doesn’t need to be as long as with long-term loans. Therefore, less established businesses can have access to money as they need it, instead of waiting for profits or until they’ve been around long enough.
A long-term loan may mean that you’ll be paying off a lot more than you borrowed. Even if your APR rate is relatively low, you’ll still have to pay back more than you borrowed. And if the loan was a lot of money and you’re paying back the loan over several years, this means that you’ll be paying back significantly more than you took out.
A short-term loan means lower interest rates because you do have to pay back the loan so quickly. Because it is short-term, the lending institution will require you to give them their money back in just a few months, or 18 months at most. Because of this, you won’t be paying as much interest back.
You should be aware that you will have to pay some interest, however, as no loan from a lending institution is totally interest-free.
Should My Business Get a Short-Term or Long-Term Loan?
Hopefully, this article helped you answer the question of, “What is a short-term loan?”
Now, the question is, “Is it right for my business?”
You’ll have to take many things into consideration before you take out a loan. One of the biggest things to consider is whether you can pay back the loan during the short amount of time the lender gives you. This is crucial before you decide you’d like to take out a loan, and what type of loan you wish to take out.
If you’re ready to apply for a term-loan or take out a line of credit of up to $500,000, apply now.[/vc_column_text][/vc_column][/vc_row]