Short-Term vs. Long-Term Business Loans

Get the financial help you need at a term suitable for your business

3/12/2019 7:00:00 AM
Short-Term vs. Long-Term Business LoansSometimes, companies need a hand when the market changes or unexpected costs arise. In other situations, a business needs a bigger boost to push it to a new operating level. In both instances, short- and long-term business loans are helpful. Learn more about these two loan options and the best time to apply for one.
Short-term loan basics
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 for businesses that 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 strikes. 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.
Long-term loan basics
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. The benefits of a longer loan period include lower interest rates and smaller monthly payments.
Which one to choose
Choosing between short-term and long-term loans is fairly simple, as it depends on how quickly a business can pay back what they owe. If the money from a loan is more of a bandage solution until more capital comes in (and the business knows it’s coming), a short-term loan is probably the right choice. However, if a business needs 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 a business should consider when looking at short-term and long-term loans is which one they 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 a business qualifies for a loan with a longer term and is comfortable committing to payments spread over several years, the interest rate — or cost to borrow money — tends to be lower.
Choosing the right small-business loan can be difficult, but we are here to help. If you are looking for financing, contact our Business Banking team today and we can help you find the option that works best for you and your business.