Overview
Short Term business loans are particularly the loans that are procured mostly for temporary ventures, where a due date is given to the borrower. The borrowed amount and the interest on the amount will have to be paid in the given time. The period is usually within a year. It is an excellent medium to bridge the gap when there is a temporary cash-flow deficiency.
Long Term business loans are best suited for the firms that are in a long-running. They can pay off the borrowed amount in an extended period of time. Lower monthly pay off is one of the perks that a borrower can experience if they opt for long term business loans. Usually, long term business loans are used for buying equipment, assets or something that has a higher value.
Short-Term Loans
A business venture which is facing difficulty in getting a credit line from the bank can always be supported by short-term business loans. Usually, short-term business loans are offered for a period of 6 months to 1 year, and if extended, it will be termed as a medium-term and long-term loan depending on the number of months extended.
Short term business loans are mostly used for:
- Monthly payments of the expenses
- Basic operational costs
- Considerate expansion
Documents that are required to apply for the loan:
- Government ID cards
- Documents that elaborate your business details and whereabouts
Types of Short-Term Loans
- Merchant cash advances: In this type of short-term loans, an advance of cash is offered to the borrower. The lender has full access to the customer’s credit facility during this period. A particular percentage of the sale is accessible to the lender whenever the customer makes any purchase.
- Payday Loans: In this type of short-term loans, the customer can obtain the amount mostly from any lender as it is extremely easy to obtain. Generally, they come with very high-interest rates. The crux of the payday loan is that the customer has to pay the interest along with the borrowed amount in one lump sum. Traditionally, the amount is acquired by the borrower from the customer’s bank account with the authority that has been provided to the lender.
- Online or Instalment loans: This type of business loans are one of the easily granted loans as everything is done online within a few minutes. The lender directly transfers the amount to the borrower’s account. Anybody looking out for instant loans can surely turn towards online business loans.
- Lines of credit: These types of loans are quite similar to the credit card business as the credit line is tapped and monthly instalments are paid depending on the expenses. The limit will be set on the expenses. They usually charge a lower annual percentage rate.
- Invoice Financing: Here, the lender loans the money for the invoices that are yet to be paid and charges interest depending on the number of weeks the customer delays in paying the amount. Every time, the lender has the authority to interrupt the flow of invoices getting paid and takes the amount of interest from the payment.
Long-Term Loans
The duration of this type of business loans is usually more than five years. It has the benefit of a lower interest rate. The customer can get the benefit of lower interest rate when they have maintained a good credit score. There are two factors on which the availability of loan depends, and they are income and credit value. The interest rate on these loans can be varied; in some cases, it can be fixed; in other cases, it may be varied on a yearly basis.
Long term business loans are mostly used for:
- Business possessions of greater value
- Acquiring of commercial real estate
- Construction loans to use the finance for brownfield projects
- Working capital for a long run for upcoming years
- Equipment, inventory purchases
Documents that are required to apply for the loan:
- Documents that elaborate your business details and whereabouts
- Verification of the entities involved in the business or if they are flying solo
- Government ID cards
- Collateral related documents
- Business plan for the existing entity, the upcoming business plan along with it
Types of Long-Term Loans
- Long-Term bank loans: Bank loans are one of the most convenient forms of loans that are available to the customer. Banks offer long term business loan for any construction development, estate acquiring or anything else. If an individual is looking for any conventional financing help, then they should surely apply for a business loan which could offer the customers a cash flow to help then in new ventures.
- Long-Term lines of credit: This type of loans is offered by conventional high-end lenders, Small business administration lenders and asset-based lenders.
- Long-Term SBA loans: General working capital purposes can be resolved with the help of SBA loans. They offer the customers the bank interest rate facilities which are most sought out by the customers.
- Long-Term merchant cash advances: The tenure for these kinds of loans is between 1 to 2 years. This type of loan is best suited for people who are looking for instant loan approval and who are facing the difficulty by having a bad credit score.
- Long-Term alternative loans: These are one of the A grade facilities that offer the loan but with an interest rate slightly higher than that of the banks. But it can suffice the needs of the business for the long term.
Ongoing business is constantly in need of cash flow for supporting different facilities and operations. An individual needs to be careful of which sector to be used for support in such a situation. Surely, getting a loan is an easier task and paying the loan, on the other hand, might seem tedious when the situations get critical. Every factor needs to be minutely checked before getting the loan as there is always a chance of something going wrong when a bulk amount is involved in the relationship between a customer and a lender.
| Factors | Short-Term Loans | Long-Term Loans |
| Purpose | Monthly payments, workable capital is available | Acquiring property, real estate business, inventory purchases |
| Rate of Interest | Higher rate of interest | Lower when compared to the short-term loans |
| Approval period | As the collateral is not involved, it does not take much time | Takes a longer time as the authorities are also included in the procedure |
| Requirements and objectives | Making considerable changes to the already existing business | Reorienting the whole business setup |
| Collateral | Not required | Required, as it is riskier when compared to the short-term loans |
| Repayment period | 6 months to 1 year, maximum 18 months | Can be 5 years or more than 5 years |
| Credit score | The credit score is neglected by some of the high-end lenders | A good credit score is to be maintained |
Applying for a business loan can act as a helping hand for people who are newly diving into business and also for people who are planning to extend their already flourishing business. Different business sectors have different necessities. It is wise to choose a business loan which can help the borrower in every way possible to uplift the business and not drown in the ocean of debt. Short-term business loans and long-term business loans both have the perks of their own, which could be used successfully by the customers according to their suitability. Ultimately, deciding which kind of loan is helpful boils down to the needs and specifications of the business that is going to be invested on. It is always a better choice to understand the business completely and if possible, curate a loan by communicating with the lender that can suit the needs of the business and can stand strong in this ever-changing market.
FAQs
- Is long term debt better than the short term?
Yes, long-term debt has more advantages over short-term debt
- Is the business loan a term loan?
Business loans are unsecured form of term loans
- What is the easiest business loan to get?
A merchant cash advance is one of the easiest business loans to get
- Does personal credit card play any role while getting business loans?
Most of the lenders do have a look at the credit card of the customer so that the expense history is clearly understood by the lender before giving any business loan.
