Let’s look at the pros and cons of getting a short-term small business loan.
- Cash flow problems: A short-term loan is an answer for you if you are facing cash flow shortages. Such as you may find it challenging to get the funding for your suppliers’ bills or other expenses. So when you get a short-term loan, you can avoid running up your credit card. These loans will make it easier for you to pay your upcoming taxes, so you don’t have to face any issue with IRS.
- The short term: the foremost benefit of having a short-term loan is that your company doesn’t suffer from debt for too long. With short-term loans, the loan becomes mature within one year so that borrowers can rest knowing that they don’t have to repay forever.
- Convenient and handy: the most suitable place ever to get a loan seems like a bank as they are the ones used for savings and withdrawal. If you have been a bank’s customers for years, then their personalized services may seem like the best plan for getting a loan. But this process can take a lot of time and you need to jump through many hoops. So shortterm loans have an advantage over the traditional borrowing ways.
- Seasonal trends: many businesses have to keep up with seasonal trends. Your business may be one of them, which mean you will require extra capital and staff to follow the seasonal trends. Short-term business loans make it easier for you to build a business and its inventory. It also covers the salaries of your temporary workers.
- Expanding: if you are looking for an expansion, then a short-term loan will help you finance. Whether you open another branch or expand your existing one, it requires upfront capital. Your worries can lessen with the help of short-term loans.
- Emergency: no matter how good business insurance you have, there may come times when your company may not be prepared for something. So, you can use short-term loans because you don’t want to go in the event of equipment breakdown, such as a computer crash or a natural disaster.
- Remain owner of your company: there are equity investors who will provide you funding but will ask for a portion of your company’s ownership in return. However, if you borrow from an online lender, it will allow you to gain the capital you need without needing to sacrifice the ownership.
- There is no need for collateral: most online short-term small business loans are unsecured, which means you do not need any collateral for them to get the approval. The most important thing that you do need is excellent credit history. Lenders run a credit check on potential borrowers, and they disapprove of a short-term business loan if you don’t have a good credit history.
- Speedy approval: if you need quick money for your business, which means you don’t have the time to go through extensive application processes at the bank. You can apply online. The online lenders don’t give you hassle over loans, and the application process is easy. You get your approval decision within a week.
- Boost credit score: if you have poor business credit, then taking a short-term loan can help boost your score. Most short-term loans are to be paid within months. This way, borrower’s credit tends to get improved fast. With the improved score, you can get a more favourable loan with a better interest rate.
- High-Interest Rate: when the economy is healthy, the interest rate on short-term loans tends to be high than long term loans. The interest rate is added by adding the prime interest rate and then a premium based on the degree of risk associated with the loan. However, in an economic recession, the interest rate on short-term loans tends to get low.
- You can get trapped: it is important to remember that you can get caught in the debt trap if you take a short-term loan. If for any reason, you cannot pay your repayments on time, you may be forced to refinance continuously into a longer payment period. Each time you elongate your repayment time, you get more interest and fees, which mean you just end up owing more and more money. Hence, only take the amount which you are confident about repaying.