There’re numerous financing options for small businesses. However, many small businesses are increasingly turning towards short term loans for financing.
Contrary to the long term loans, short term loans offer numerous benefits, which we shall be exploring shortly.
- Quick and Convenient Application Process
A major benefit of a short term loan is the quick and easy application process.
So convenient is applying a short term loan that you can even apply online in the shortest time possible.
Unlike the traditional bank loan, you don’t necessarily have to put up with compiling paperwork and setting specific days to avail yourself to the bank.
A short term loan can be processed in a matter of a few minutes.
- Obtain Funds Faster
Besides the convenience of a quick application, short term loans are usually accompanied by faster processing of your loan application.
According to Finimpact, some of the short term loan applications can be processed in as little as 24 hours.
Once your application is approved, funds can be deposited in your account almost immediately.
This benefit is super convenient, especially for SME’s who are in dire need of cash and do not have the time to wait for long delays that are often associated with traditional bank loans.
Therefore, if you have a time-sensitive opportunity and don’t have the cash to implement, a short term loan should be an inspired choice.
- Unsecured Borrowing
Most of the short term loans are offered on an unsecured basis.
What this means is that small business owners are not required to provide collateral against the debt.
The benefit of this system is that your assets cannot be seized in case you default or fail to pay the loan.
On the flip side, however, such kinds of loans usually come with higher interest rates.
Nonetheless, this type of borrowing makes short term loans a less risky investment, especially to SMEs who cannot afford to lose their investment or any of their business capital.
Short term loans are known for their flexibility as they can be tailored to meet the demands of the borrower in several ways.
Customization of a short term loan in manifested in various elements such as;
- Repayment terms
- Repayment period
- Varying interest rates
- Repayment options
We had mentioned most of the short term loans are accompanied by higher interest rates, and you might think this negates their cost-effectiveness.
In reality, the shorter-term repayment schedule can potentially reduce the total interest rates compared to paying low-interest rates over a long period.
Though some of the long-term loans usually have lower interest rates, the longer repayment period, which spans up to 30 years, can significantly add up the total amount paid in the form of interest.
- Potential for Improved Credit Scores
There are fewer restrictions associated with short term loans, meaning that lenders are likely to hand out these loans, even to individuals with poor credit scores.
However, if paid back in full and on time, the short term loans could potentially increase your business credit score within a short period.
This means you can be approved for other types of loans in the future.
Sure, the long term loans will also improve your credit scores, but most of them usually take long to repay, meaning that time will not “benefit” you.
- Safety Net during Emergencies
It’s not uncommon for small businesses to experience seasonal fluctuations.
At times, emergencies might arise, such as the breakdown of critical equipment, and when such happens, it can impede the overall operations of the business.
According to Fundera, short term loan requiring a few minutes to apply, along with the ability to receive the funds within 24 hours, short term loans make a suitable option to provide a safety net in times of emergencies.
Sure, the short-term loans have their fair share of downsides, but their benefits, as you can see, far outweigh the drawbacks.