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Pros and Cons of a Short-Term Business Loan

You have done a bit of research on the different types of funding, and you decide that you need a short-term business loan. Awesome! One of the important homework pieces for you in the funding process is to do your research. That is, understand the pros and cons of the funding you are looking at receiving to determine if it really is the best option for you. Oh, and just because you think it would be the best option for you, don’t be surprised if a funding company talks you into a different type of program. Just remember, they are looking out for your best interest and want to be sure you can still operate your business successfully with the funds you need.

Benefits of a Short-Term Business Loan

1. Get your funding as one lump sum

Some business owners (maybe yourself included?) prefer to get their money upfront, rather than access it periodically like a business line of credit. One big benefit of a short term business loan is that you get access to your funding upfront.

2. Receive Funding Quickly

One of the major benefits of a short-term business loan is that not only do you get your funds as one lump sum, but you get them quickly. Most funding companies can send the funds to you within 24 hours of approval. 

3. Easy to Qualify For

Funding companies understand that small business owners need access to funding once in a while. A short-term business loan is a great starting point for first-time funding clients. Funding companies typically need minimal documentation and many companies can tell you what you are approved for very quickly.

4. Different Term Lengths

A perk of a short-term business loan is the different options within the loan itself. Term lengths vary between companies and qualifications but most companies offer term lengths between 6-18 months. Something to think about: if you are a first-time funding client, don’t be surprised if your funding company offers you a shorter term.

Things to Consider with a Short-Term Business Loan

1. You Need to Re-Apply if You Want More

Yea… so if you need more money, you are going to need to re-apply. The good news is, there is no cost to apply and most companies don’t do a hard credit pull, so it mostly comes down to a little extra time on yourself to re-apply. Some funding companies will even reach out to you as soon as you’re eligible for another round of funding. The good news is, you may qualify for a longer term length if you do re-apply!

2. Hard to Qualify for a Longer Repayment

Remember how I mentioned your funding company may offer you a shorter term? Funding companies, like all companies, consider risk when they approve deals. Shorter term lengths are less risky for companies, so it may be harder to qualify for a longer term length.

On the same topic, it is also harder to qualify for a longer repayment in terms of daily or weekly payments. Most first-time funding clients will see a daily repayment requirement, with some qualifying for weekly. In rare cases the funding company can get their client approved for a monthly repayment, but don’t get your hopes up (just sayin’).

3. Repayment Inflexible

Unlike a merchant cash advance where the repayment is flexible based on cashflow, or a business line of credit where the repayment depends on the amount of credit taken, a term repayment does not have the same flexibility. A short-term business loan repayment has one of the most structured repayment programs on the market. Regardless of your cashflow, revenue, or how much funding you take, you need to make the set repayments.

Wrapping Up

Knowing your options for different funding solutions is an important part of your journey to get money for your business. This article helps identify the pros and cons of a short-term business loan. It’s not meant to deter you, it is meant as an educational piece to help you understand what is involved in one of these funding options. Of course, there may be more pros and cons and we suggest you do additional research if you are having doubts on whether or not you should get one. If you would like to discuss your options for a short-term business loan, speak to one of our funding advisors today! Your business is unique and we specialize in making sure we understand your business needs so we can customize a solution that will be the best option for your business.

This content is for educational or informational purposes only and should not be taken as legal or financial advice. The information in this content does not necessarily reflect the views of Coast Funding Services LLC or its partners.