Short Term Business Loans – The Instant Business Finance Solution
Everyone has dreamed of being the boss. The prospect paints an attractive picture especially when you need to break away from a repetitive 9 to 5 work routine and want to have greater creative independence. The most common way to do this is by opening up your own business. But whether you are just starting up your business or have already started, the challenge of being your boss is, honestly, more considerable and having a business requires a fair amount of business capital. Unless, of course, you have a balance sheet like Apple or Amazon. Aside from this, there is still the ongoing threat from the Covid pandemic which has swept and affected the whole world – small businesses even more so. But life, as they say, must go on.
For those wanting to start small, finances often come from their savings or money borrowed from family or friends. Small start-up businesses almost always have to contend with the reality of being able to quickly finance immediate working capital needs and obligations. After a short time of business operations, however, short-term loans become inevitable. You may want to expand or renovate your business or a sudden, temporary cash flow is needed and even fortuitous events like Covid-19 bring this truth even closer. Generally, you should only apply for loans when you know you can pay the debt on time.
To keep the business running, short-term loans become a pretty good solution. Short-term business loans, as it denotes, have a tenure or loan maturity of about a year or even shorter. The longest tenure for a short-term loan can be up to 18 months. Any longer than the loan will be classified as medium-term or long-term. Additionally, payment terms for short-term loans are not as strict and the borrower can choose to pay back the loan and interests at their own pace within the given one-year (or less) period. Once approved, you can get the lump sum quickly, in as short as 1 day. It’s difficult to secure a long-term loan that fast. Taking this type of loan also means you are borrowing at significantly lower interest rates than if you were to get a long-term loan. Long-term loans are taken at multi-year payment terms with a detailed, more complicated application process.
A big plus is, these short-term mortgages or debts often come in handy given that a borrower does not have to commit to long payment terms. This easily assures the borrower from being able to bounce back from any acquired debt. The disadvantage, however, is the borrower can only secure a smaller amount of money.
Still, a short-term business loan becomes the most viable option for start-up and small businesses that have yet to establish their credit line and have difficulty getting approved for traditional loan options from banks or bigger lending institutions. Short-term business loans also help the owner get better credit scores in the long run. If you can pay the loan amount regularly, your payment history is reflected in your credit scores. With higher credit scores, you can easily qualify for larger loans or can get fast 2nd mortgages in case you need them.
But whether you are a start-up or a small business owner, you have to arm yourself with knowledge about current interest rates. In a normal economy, rates for short-term business loans (vs. loan term business loans) are significantly lower. Although in the current recessionary economic climate, interest rates for short-term loans have gotten higher. Lenders also need to calculate the risk in allowing businesses to borrow money in this financial environment. It needs to be reiterated that finding the right financing model for your business is key. You do not want to find yourself in a situation where you have to lose a portion of your investment (or lose it entirely) or be locked in with long, high repayment terms. Every business is different, with its own set of issues and challenges. It is extremely important to know what these are. The paramount considerations for you to take on a short-term business loan are, first, the amount of money you currently need and, two, your intention on the length of time you plan to pay for the loan.
Most start-ups and/or small businesses can qualify for a secured loan. This means having to offer up collateral to get a loan. This becomes very risky for owners especially if it’s the business they have to offer as security. Again, if it is just a temporary financial hurdle or for those not wanting to offer any kind of collateral or simply do not have collateral, there is still the option of taking on unsecured loans. Taking unsecured loans means that the owner does not have to give collateral. But more often than not, getting an unsecured loan implies that you have to have a good credit score or history – your creditworthiness. This poses a bit of a problem for start-up and small business owners with limited or poor credit scores.
In this situation, owners can opt to take up private business loans. Private business loans are loans taken from non-bank institutions or traditional business lending sources. This type of business loan has a quicker and easier application process. Private lenders can tailor fit their funding offers according to the needs of the borrower so there is more flexibility in what the owner-borrower can use the borrowed money to fund. Private financing lenders can also have less strict standards than traditional business lending options. They also do not require borrowers to provide equity as collateral for loans. The main disadvantage, however, is the higher interest rate. Private business lenders also get their capital from banks or other investors that is why they need to charge higher rates.
Regardless of the terms of the business loan, you have to find a lender that can understand the needs and demands of your business. Find the best solution that fits you.