It is important to know what type of loan you will take out for your business – whether it is a long or a short business plan. Unless you’re among the lucky few with a barrel of capital, your business needs financing. Business financing options range from Kickstarter to business credit cards. Today we are going to discuss the difference between a short-term and long-term business loan. We’ll also go into the pros and cons of each to help you decipher which is the best business financing option for your endeavors.
Short-term Business Loan
A short-term business loan usually requires repayment of the lump sum, interest, and other fees within 3 years. But, can be due in as short as 18 months.
When it comes to short-term loans, you can usually receive your cash in hand fairly quickly. Sometimes even within 24hrs. The application process is also a bit less restrictive than your traditional loan-term. Short-term loans can help with the unexpected (which happens often in business).
Because you need access to cash quickly and promise timely repayment, interest rates are typically higher. Like paying for faster service. So a short-term loan will cost you more.
A short-term loan may be the right business financing option for you if you have made an obligation to a paying client but don’t have the capital to fulfill the inventory needs. It is also ideal for emergencies, as long as it won’t put you further behind. Businesses that generate daily revenue are often well-prepped for this lending method.
Long-Term Business Loan
Long-term business loans are fairly traditional and common. Repayment ranges from one to five years with an interest rate range of 7%-30%. A long-term business loan is usually for larger amounts up to $500,000 maybe more, payments are monthly.
A long-term business loan is often a business financing strategic move. Usually, this type of capital is part of a larger picture helping your business goals become a reality. The repayment length is often less pressure than a short-term loan. If qualified, the limitations, or how the money is spent is not as restricted as a short-term business loan.
A long-term business usually includes a longer application process. Not to mention, these loans are quite challenging to qualify for. A long-term business loan is well-suited for a business that is well-established. This is not a source of emergency funds but a strategic financial decision for growth.