Long-term vs. Short-term Small Business Loans

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Most small businesses need a little help from time to time. With so many long-term and short-term loans available, it can be difficult to tell which one is best for you and your business. Whether you’re just starting out or looking to take your business to the next level, this information can help you determine what kinds of small business loans can benefit your bottom-line.

Consider short term loans if…

You need flexible borrowing and/or repayment options. One of the main advantages of short-term loans is that their repayment terms are typically more flexible than long-term loans. While long-term loans usually involve a commitment to a fixed monthly payment over the course of several years, with a short-term loan, such as a business line of credit, inventory financing or working capital financing you can often make interest-only payments for the first few months until you get on your feet. Also, with a line of credit, you don’t have to reapply for a loan every time you need to borrow money. Your line of credit is always available to you.

You need to restock inventory quickly. During the busy holiday season, many businesses, especially retailers, may want to quickly replenish their inventory in order to keep up with demand. Short-term inventory financing can help cover the costs of restocking. Also, since many retailers expect to make their money back fairly quickly, a shorter-term loan will allow them to pay back the borrowed funds right away.

You’re experiencing a temporary decrease in cash flow. Whether your business has seasonal lulls and highs or you’re just experiencing a rough patch, securing a business line of credit can help keep your business running smoothly even under difficult circumstances. Some businesses experience a significant gap in cash flow between their accounts payable and accounts receivables, making it difficult to pay for operating expenses in the interim. Working capital financing allows you to borrow quickly, repay quickly, and borrow again. This means that you’re not locked into a larger, long-term loan. You only borrow what you need, when you need it.

Consider long-term loans if…

You’re just starting out. Starting a new business can be a costly affair, and many people need a little help establishing their business. From renting space and buying equipment to purchasing inventory and hiring employees, business owners need funds to cover a wide variety of expenses when growing their businesses. Exploring small business banking loan options is a great way to secure the necessary cash. Long-term small business loans usually allow the borrower to take out much more money upfront than a short-term loan, with a regular monthly repayment plan.  Many growing business owners may also want to look into securing a Small Business Administration (SBA) backed loan from an SBA participating bank.

Your business is undergoing an expansion. When business is going well and you’re ready to expand, long-term loans can take your company to the next level. A small business mortgage allows you to buy or refinance an office, studio, factory, warehouse, land, or other type of commercial real estate. Owning your own property has many advantages, like being able to remodel or arrange your commercial space without the permission of a property manager or owner. Also, you won’t have to worry about untenable raises in rent or having to find a new space after your lease ends.

Sponsored content was created and provided by RBS Citizens Financial Group.

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