The Advantages and Disadvantages of Short-Term Business Loans

Small business owners will know that there are times when cash reserves dry up. This may be prompted by a need for unexpected repairs to equipment, an unanticipated re-supply of stock, a brief period of lower demand for goods or services, a temporary revenue shortfall, or simply a month or two when the numbers don’t quite add up as you would like. It happens to most small businesses at some point, so there’s no need to be unduly concerned. To help you over a financial hurdle, you may benefit from taking out a short-term business loan. This is a type of business capital loan that provides your small business with an injection of working capital. You will receive a lump sum that must be paid back over a set time, usually a shorter window than other loans. When you take out a short-term business loan, there may be lender fees added, and the interest rate is also likely to be higher than loans paid back over a longer period.

In this article, we’ll talk you through the advantages and potential disadvantages of this solution.

Advantages of short-term business loans

Quick and convenient access to working capital

The most compelling advantage of using a short-term business loan is that it gives you fast access to the cash you need to keep all aspects of your company operational. You will not be required to make cutbacks to staff hours, miss payments to suppliers, or hike up your prices. Instead, you can inject sufficient money into your business to ensure that there is no disruption to trading.

Appropriate for a variety of business purposes

A short-term business loan is not limited to one specific purpose. Once you have agreed terms with a lender, you are free to direct it as you see fit. Whether you need to make up a shortfall in wages, pay a bill, or purchase new stock, it’s entirely up to you.

Limited paperwork

With a short-term business loan, you will not be required to endure the rigmarole of multiple pages of associated paperwork. An increasing number of loans can be secured online; eliminating the need to utilise precious paper supplies. If you are considering a short-term loan, LendGenius can help. Apply online here.

Set payment structure

There are no surprises with a short-term loan. The payment structure is created and agreed before any money changes hands. You will not be hit with unexpected fees, as long as you keep to the payment schedule.

Bad credit is not a limiting factor

If you have an unfavourable credit rating, this is usually not a problem when applying for a short-term business loan. Most lenders will not penalise you.

Disadvantages of short-term business loans

Relatively high APR

As the payment period is relatively short, and loans are unsecured, you may encounter a high APR. This must be factored in when budgeting the repayment of a short-term loan.

Payments can be difficult if revenue fluctuates

The circumstances that created a need for a short-term business loan may also affect your ability to pay it off in the future. Consider whether any revenue fluctuations are to be expected over the course of a payment plan.

Loan amounts are capped

If you have a need for a significant capital outlay, a short-term loan may not be right for you. In this instance, it is worth discussing your situation with another lender.