From bridging cash flow gaps to expanding your business operations, there are many reasons why small businesses opt to secure additional funding. There are also many types of business loans available in the market and they are categorized into two different groups: short-term and long term loans.
Before applying for a loan, be sure to assess the needs of your business to determine whether you need a short-term or a long-term loan.
Short-Term vs. Long Term Loans
As their names imply, short-term and long-term loans primarily differ in respect to the length of time a business has to repay a loan. The terms for a short-term loans can last for as little as a few months, or as much as (depending on the lender) two years, whereas the repayment period for a long-term loan is generally extended over a longer period of time.
There are a number of factors to consider when determining which type of loan (short or long-term) is best for your business, such as the following:
- When you need the funds.
- The amount you need.
- The lender you choose.
- The existing financial health of your business
- Collateral (if any) considerations you can provide, if required.
What is a Short-Term Business Loan?
Businesses often choose short-term loans to address immediate funding needs. If you are dealing with unexpected demand/expenses, or if you want to take advantage of timely business opportunities, a short-term loan can provide you with quick and flexible financing.
You can apply for a short-term loan from alternative lenders since they tend to have less restrictive loan requirements compared to traditional banks. With a short-term loan, companies are able to secure the funding they need without having to borrow a large sum of money.
What is a Long-Term Business Loan?
A business looking to finance a long-term need, such as a business acquisition or expansion, is better off applying for a long-term business loan. The repayment terms for this type of loan can be as long as five, ten, or even 20 years. On the other hand, short-term loans provide immediate funding (usually within a day or two), whereas approval for a long-term loan application generally takes at least a month, and requires more documentation than does a short-term loan.
Which Type of Loan is Better?
At the end of the day, business loans do not have a one-size-fits-all solution. The type of loan you choose should depend on the needs of your business. Small business owners often choose short-term loans to add to their working capital. Long-term loans are more appropriate for someone looking to expand, acquire, and meet larger business objectives.
No matter which type of loan you choose, be sure you work with a lender who understands the needs of your business. There are many traditional and alternative lenders that offer long-term loans, but it’s important to choose an experienced lender who has worked closely with small business owners.
The experts at SMB Compass specialize in providing small businesses with the funding they need in order to increase their cash flow, purchase equipment, or expand their business operations, whether that be short-term or a long term loan such as asset-based lending, invoice factoring, a business line of credit, SBA loans, and more.
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