If you find yourself in a bind, you can get a small business loan or personal loan, or a line of credit. Qualifying for a short-term loan is a lot easier than the credit requirements for long-term. However, there are still conditions that you have to meet.
Factors that Can Affect Your Loans and Rates
- Business revenue
- Personal credit score – With a good credit score, you can get a much lower APR.
- How long your company has been in business.
Short term loans are useful for when you need some quick investment money to work with. Especially, when your resources are tapped but there’s guaranteed the need for your product. They have higher interest rates, shorter repayment terms, and fixed rates than long-term loans. Find the lowest possible interest rates and reputable lenders. Explore your options such as banks, online loan sites, and even peer-to-peer(P2P) lending. Do not fall victim to cash advance and payday schemes.
Choosing a Short-term Loan
If you can pay your short-term loan off quickly, you can save money compared to a long-term loan. Although, if you need more freedom with your current cash flow, you may want a longer term. Duration can vary from three months to a year.
Lenders will ask about your reason for getting the loan. They will want to know your profits, loss, invested capital, and cash flow. Lenders may ask for your bank statements and your business’s balance sheet. Secured loans will need a collateral. Unsecured loans will not need a collateral but have higher interest rates.
Before Getting a Short-term Loan, Ask Yourself these Questions:
- Why does your business need it?
- Will the profit you make in the next 6 to 12 months exceed the interest accrued?
- Can you afford with 100 percent certainty to pay it back in time?
- Can you afford to lose your collateral? – Although the lower interest rate secured loans is beneficial, it is risky business for the bank to have a lien on your company’s assets.
- Is your business suffering losses now due to lack of funds? Sometimes it is better to suffer a loss now than to lose your customers.
Find sites like these to compare pros and cons of each loan company:
Understand the Difference Between Loans and Lines of Credit
A loan is a lump sum, but a line of credit is an account that is drawn from again after repayment. If you have a big one time investment such as an important machine, it’s better to get a loan. However, a line of credit, with its revolving term, can supplement your cash flow.
If you have an unpredictable project cost, a line of credit is more flexible. Loans have fixed rates, lower APR, and fixed terms. Lines of credit have variable rate, higher APR and are open-ended. Lines of credit will have minimum payments, while loans will have fixed ones. Understand the risk of these types and the needs of your business before signing any papers. Happy investing!