Short-Term vs. Long-Term Business Loans

Sometimes, companies need help getting by when the market changes or unexpected costs arise. Other times, a business needs a larger boost to help it grow. In both cases, short-term and long-term business loans can be useful. Here’s a breakdown of both loan options and when you should consider applying for each.

Short-Term Loan Basics

As the name suggests, short-term business loans don’t last long. These loans typically last less than a year, with some terms as short as 90 days. Short-term loans are great for businesses that need to build up inventory for busy periods. For example, a retail shop might need a short-term loan in the fall to prepare for the holiday season. A manufacturing company that needs supplies before production can also benefit from a short-term loan.

Long-Term Loan Basics

While short-term loans are for quick cash needs, long-term loans are for bigger projects. According to NerdWallet, these loans are best for businesses making major investments or expanding. Long-term loans can have terms of up to 10 years. While qualifying for a long-term loan is typically more difficult, the benefit is lower interest rates and smaller monthly payments.

Which One to Choose

Choosing between short-term and long-term loans is simple: it depends on how quickly you can pay back the loan. If the loan is a temporary solution until more capital comes in, a short-term loan is probably best. But if your business needs a larger cash infusion for something that won’t generate income right away, a long-term loan may be the better option.

Startups often qualify for short-term loans more easily, but higher interest rates might make repayment harder. If you qualify for a long-term loan, the lower interest rates can help make payments more manageable over time.

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