Let’s say you've been an established company for a few years now; business is steady overall but sales are on a decline since it’s the off season.
You panic because you need capital to pay your employees and replace that old piece of equipment you have in the warehouse. You’re struggling to find the funds internally. A business loan is definitely needed right now, but how do you choose between a short-term loan and a long-term loan?
Let’s take a look at the differences:
With a repayment schedule of less than a year, short-term business loans offer business owners a quick way to obtain cash for business emergencies or sudden purchase offers that arise. They are easier to obtain and generally much faster process-wise than long-term loans and often include alternative lending options such as a cash advance or an unsecured working capital loan.
Terms of long-term business loans are often far longer than their short-term equivalent. This makes long-term business loans popular among owners who require a hefty loan to make larger purchases such as new equipment. This type of loan, in contrast to short-term loans, is more difficult to get approved for and takes much longer from application to disbursal of funds depending on the institution it's being borrowed from.
Short Term vs Long Term Loans
Are you a small business owner looking to receive funding quickly? In that case, a short-term loan option might be your best choice. Not only is it easier to apply for and be approved for, but you often gain access to the money within 24 hours of applying.
On the other hand, for major purchases you will want to explore a long-term business loan. Longer terms are better suited to larger purchases that are durable and meant to last such as new equipment. In order to obtain a long-term business loan, you'll need to have good credit (in the case of our long-term products, a 650 minimum, to be exact). But don’t worry, if you’re looking for a business loan but have bad credit there are options for that, as well.
The Bottom Line
So, which type of business loan is best for your business? Remember, it all comes down to what your business needs and what your current financial status is. Those two factors will make all of the difference when selecting the best program for your working capital needs.