Long-Term vs. Short-Term Business Loan: Which is Best?
At some point, your company may require securing a business loan. This money can be used for everything from working capital to expansion to acquiring a competitor. Typically, loans have been acquired from banks, although that is starting to change.
Before you apply for a loan, before you sign your name on the dotted line, you should compare the finer details of long-term and short-term business loans. They may appear one in the same, for the most part, but nothing could be further from the truth.
Long-Term Business Loan
These loans are commonly provided by large lenders, and most often used for refinancing, working capital, and expansion.
As expected, a long-term business loan is repaid on a monthly basis. When compared to short-term loans, these typically have a lower interest rate.
Note: you will find it easier to obtain a long-term business loan if you have a well-established business, or a younger company with a solid business and growth plan.
If you want money in a hurry, without agreeing to a long repayment period, a short-term business loan may be the answer. This type of loan is typically used to raise funds for accounts payable, to purchase inventory, or to deal with a short-term cash flow problem.
Short-term loans are usually $100,000 or less and are due, in full, within a couple of years (at the most).
Note: seasonal businesses often rely on a short-time business loan to get them through a slow period.
How to Make a Decision
Now that you understand the differences between long-term and short-term business loans, it is time to make a final decision. Here are some questions that can point you in the right direction:
How much money do you require?
How are you going to use the funds?
When do you need the money?
Are you comfortable paying the loan back over the long term?
Once you answer these questions, you will have a better idea of which type of loan is best for your company. You may also want to look into the possibility of obtaining a grant as opposed to a loan. From there, don't hesitate to contact several banks or credit unions to discuss the exact specifications of your situation.