As an entrepreneur, one of the biggest challenges you may face is securing financing to support your business growth or cover unexpected expenses. Here, small business term loans can be a valuable tool. However, it’s important to understand the different types of loans available and their respective terms.
Pros and Cons of Short-Term Loan Terms
Short-term loans typically have a repayment period of less than one year and cover your immediate expenses or bridge cash flow gaps. Perhaps the most significant advantage of a short-term loan is that the approval process can be faster.
Unlike long-term loans, which may require extensive documentation, short-term loans are often approved based on the creditworthiness of the business owner. They can be especially beneficial for businesses that need immediate access to funds without a lengthier commitment.
Of course, there are disadvantages to consider too. For example, short-term loans can come with higher interest rates because lenders perceive them as greater risk due to the faster payment period. They can also put a strain on your cash flow because the monthly payments can be higher.
Pros and Cons of Long-Term Loan Terms
Long-term loans are designed for businesses that require larger sums of money and longer repayment periods. Such loans can run from three to ten years. Sometimes even longer.
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The biggest advantage of securing long-term loans is that they can have lower interest rates than the shorter variety. The smaller monthly payments plus the extended payment period can make it easier for a small business to manage cash flow.
Long-term payments have their drawbacks too. The application process can be more time-consuming and require extensive documentation. In addition, your business will be committed to the loan for a more extended period, which will negatively impact your agility. For example, you may be unable to secure additional debt for critical investments when you already have a large long-term loan.
Factors to Consider When Deciding Between Long and Short Terms
It’s crucial to carefully assess your business’s goals and stability before picking the term length of the loan. Here are some factors that should impact your decision:
- The purpose of the loan.
- Your business’s cash flow.
- Your creditworthiness.
- Your financial history.
- The economic climate.
- Your outstanding debts.
- The ability to repay the loan.
You should also consider the loan amount, repayment period, interest rates, and any additional fees or charges. Consider creating a side-by-side comparison to help you analyze the differences between your options.
Use an Advanced Loans Platform
When exploring term loans for businesses, consider using an intelligent online loans platform like Levr.ai. This cutting-edge resource was designed to get your business funded — fast. It leverages a unique compatibility system to boost your chances of approval and match you with a certified lender that’s right for your business’s needs.
Despite being a sophisticated platform, Levr.ai is easy to use. It also offers multiple resources to applicants for help.
Making an Informed Decision
Choosing between short-term and long-term loan terms for your small business isn’t a straightforward task. Please assess your business’s needs, financial situation, and goals to determine which loan term aligns with your objectives. With the right type of financing, you can support your company’s growth and hit your targets.