If you own a small business, you know you sometimes need a hand when the market changes or when unexpected costs arise. Or, maybe you need a boost to push your company’s growth to a new level.
In both instances, short- and long-term business loans can be helpful. Learn more about these two loan options and which one could be right for you.
What Are Short-Term Business Loans?
As the name implies, short-term business loans don’t stay on the books for long. According to Rosemary Peavler in an article for The Balance Small Business, these loans usually last less than a year, with some terms as short as 90 days. These smaller loans are great if you need to build up inventory for busy times.
For instance, a retail shop might apply for a short-term loan to buy Christmas inventory in the fall so they’re ready when the holiday season comes. A manufacturing business that needs to pay for supplies before production begins might also use a short-term loan to help them get moving and bring money in.
What Are Long-Term Business Loans?
While short-term loans are for quick infusions of cash, long-term loans are for much bigger projects. According to NerdWallet, these loans are best suited for a business making a major investment or expanding.
Long-term loans have more options, with some of them having terms up to 10 years. While a business (and its owner, depending on its structure) needs to be in good order to qualify for either a short- or long-term loan, long-term loans are much harder to qualify for. However, a longer loan period means lower interest rates and smaller monthly payments.
Should I Choose a Short- or Long-Term Loan?
Choosing between short-term and long-term loans is fairly simple depending on how quickly you can pay back what you owe. If the money from a loan is more of a bandage solution until more capital comes in (and you know it’s coming), a short-term loan is probably the right choice.
However, if you need a lot of cash to pay for something that might not produce income for a while, a long-term loan is a better option.
Another thing to consider when looking at short-term and long-term loans is which one you qualify for and how expensive it is to borrow that money.
Start-up businesses usually qualify for short-term loans more easily than long-term loans. The funds might be enough to get them going, but the higher interest rates might make repayment harder than looking for other sources of cash.
If you qualify for a loan with a longer term and are comfortable committing to payments spread over several years, the interest rate tends to be lower.
Getting Help with a Loan
Choosing the right small business loan can be difficult, especially if you qualify for different types. If you have any questions about which term is best, consult a financial advisor before signing on the dotted line.
At Minster Bank, you’ll find a wide range of products and service that can help your small business grow. Learn more about the business loans we offer, and get started with growing your business.
Published by Minster Bank
Includes copyrighted material of IMakeNews, Inc. and its suppliers.