Term loan agreements involve a lump sum of capital being deposited directly into a business’s bank account from a lender. The funds are then paid back, with the interest accumulated, within an agreed timeframe.
Short-term loans explained
Short-term business loans are typically granted to businesses within a repayment period ranging from 1 to 18 months. The process of applying for a short-term loan is relatively fast, and funds can be transferred within a comparatively short notice period.
Long-term loans explained
Long-term loans are paid off over an extended period of between 18 months to 20 years. Although the most noticeable difference between these two types of loan agreements is the length of time in which the repayment is made, there are further factors that a borrower needs to consider when comparing the two options. A long-term loan, more often than not, results in a higher total accumulated repayment amount.
Due to the relatively quick application and approval process coupled with the swift transfer of funds, a short-term loan allows businesses to minimize potential opportunity costs that could potentially occur while waiting for a long-term loan to be approved.
An opportunity cost refers to the potential benefit sacrificed when a business does not go forward with a potentially beneficial prospect.
Under many circumstances, when utilized correctly, a short-term loan can be a more affordable and viable solution for a business requiring funding. The lower interest rate and the extended repayment periods of long-term loans are not the only factors to consider when making the choice between these two funding plans.
The most notable benefits of opting for short-term loans include:
- Accessibility: they are much easier to obtain than long-term loans
- Speed: the application process and transfer of funds is quicker
- Ease of application: the application forms required are easy to compete
- Choice: there are relatively more alternative financiers willing to enter into short-term loan agreements than long-term loan agreements
If you find that one of these advantages are something your business are looking for took not further than CorpFin. Through CorpFin you can apply for a wide variety of financing options.
If you would like to have a chat with one of our financing specialists you are more than welcome to do so today.