Long-term and short-term financing can be both beneficial according to how they suit your different business needs. Companies usually use short-term, asset-based financing when they’re just starting out, this type of financing is generally used more for working capital. When a company expands or starts to gain a track record, they may access either cash-flow or asset-based, long-term financing, which has a lot of strategic benefits.
What's the Difference Between Long-Term and Short-Term Loans?
If you research small business loans, you might discover a few financing options that you didn’t even know existed. You may find at least one familiar phrase: term loans.
Term loans are an amount of cash that a lender credits right into an approved borrower’s business bank account. Borrowers will pay that amount, plus interest, over a predetermined period of time.
You might not know that there are different types of terms. These are long-term and short-term loans. Long-term and short-term loans differ based on the extent of their terms, obviously, but there are a lot of less noticeable differences among them as well: The eligibility requirements, loan amounts, and interest rates can differ definitely, too.
Although one may seem more enticing than the other, in reality, the type of loan you’re dreaming about might not be suitable for your business at the moment. You’re possibly hoping for a high-capital, low-interest, long-term loan, but a short-term loan might be the more inexpensive, more available, or merely the more appropriate form of funding for your business especially if you’re a start-up. It does need a few years’ worth of profitability and general financial stability that gives lesser risk, long-term lenders need to see from their borrowers. Alternatively, maybe you do have the qualifications for a long-term loan. Either way, your choice will result in your bottom line. With Sals Capital, you can get both types of loans at the same time.
How Long-Term and Short-Term Loans Differ
There are a few important differences between long-term and short-term loans, aside from their repayment periods that you should know.
1. Eligibility Requirements
For long-term loans, only the most qualified borrowers have been acceptable. That's because there is a greater risk of nonpayment in a long-term loan compared to a short-term loan.
When lenders extend hefty amounts of money over a long period of time, they need to be absolutely sure that they’re working with borrowers who will repay what they owe in full and on time. Generally, that amplifies the eligibility of established businesses, with several years of profitability, owned by personalities with high credit scores. Obviously, only a few businesses can meet those requirements. 2. Loan Amount
Of course, long-term loans offer borrowers bigger loan amounts than short-term loans do.
Again, the exact amount that a lender will offer an approved borrower depends upon the data given on the borrower’s business loan application. Loan amounts depend upon the lender itself, and the type of loan offered, too; that’s specifically the instance with online lenders, who all put different limits on their loan products.
Short-Term Loans: $2,500 to $2,000,000. The average short-term loan amount is $20,000.
Long-Term Loans: $5,000 to $500,000, with an average loan amount of $110,000.
3. Loan Cost
As you know, loans are not free—you’ll have to repay the lump sum (also known as the principal), the interest rate your lender assigns you, plus any additional charges.
In any small business loan-related, the charges of any given loan isn’t fixed because every loan program and underwriting process is different. Where to get funding
Interested which loans you might qualify for? Better Call Sal at (332-334-1077). We have a variety of funding options everything from Startup funding, working capital, lines of credit or even equipment finance. We can do consumer financing and get your customers financed up to $50,000 as well.