Are you a small business owner? Do you have interest in applying for a short term loan? Do you want to learn more about this financial product before committing?
There is a lot to learn about short term loans, so you don’t want to sell yourself ‘short’ by not knowing what you can get from a short term loan. The more knowledge you collect the easier it becomes to decide if this is the right decision for your company at the present time.
A short term loan is exactly what it sounds like. It’s similar in many ways to a more traditional term loan, with the primary difference being the requirement to make daily or weekly payments over the course of 3 to 18 months (typically).
The benefit of the shorter term is the ability to get the loan off your books in a timely manner. This is unlike a long term loan, with which you could be carrying debt and paying interest for many years.
Now that we’ve discussed the basics, let’s examine a few additional details surrounding this type of loan:
- Eligibility Requirements
There is no guarantee that you will qualify for a short term loan, so you should learn more about the eligibility requirements before you get too far into the process.
While the requirements change from one lender to the next, here are some of the basics:
- Minimum credit score of 550
- Minimum of one year in business
- Minimum of $50,000 in annual revenue
If you meet all of these requirements, you’ll find it much easier to locate a lender that will approve your application for a short term loan.
- Get the Money You Need
With so many types of small business loans, it’s easy to fall into the trap of believing they are all the same. This isn’t true on any front, including the amount of money you can borrow.
With a short term loan, you can typically borrow between $2,500 and $250,000. Most companies find that this suits them well.
Note: the issue with borrowing a large sum of money via a short term loan is the payment. Just the same as any loan, the more you borrow the higher the payment. However, since the term is so short, this is magnified.
- Plenty of Benefits
By now, you should have a good idea of the benefits associated with a short term loan. Here are several others that you should be aware of:
- Limited paperwork, allowing you to secure funding within a reasonable period of time (sometimes as quickly as a couple of days)
- Set payment structure, making it easy to plan your budget
- Ability to secure a loan even with bad credit
- The funds can be used for a variety of business purposes
These are the types of benefits that steer so many business owners toward a short term loan.
- Potential Drawbacks Exist
Just the same as any loan product, there are potential drawbacks to keep in the back of your mind. By understanding these upfront, it’s much easier to decide for or against a short term loan when the time comes.
The two potential drawbacks you need to be aware of include:
- Weekly payments can be a challenge to keep up with if you don’t have steady cash flow
- Annual costs are higher than those associated with longer term loans
These drawbacks are enough to scare some business owners away from a short term loan, but this doesn’t hold true across the board. You may not have any problem with these drawbacks, as you realize that the benefits are much more powerful.
These may not be the only things you need to know about short term loans, but the information should give you a better idea of what this could do for your business.
There are other options to consider, and you should learn more about those as well. That’s the only way to be 100 percent sure that you’re making the right decision.
Do you have any experience with a short term loan for your business? Was this exactly what you were hoping it would be? Would you opt for this form of borrowing again in the future? Share your experiences with short term loans in the comment section below. Your advice can help other business owners make the right decision at the right time.