Those of you who have built a business up from scratch are probably already aware that loans are necessary for success. However, those of you who are working on your first big idea might not know just how useful borrowing can be. But the fact is short term business loans, and particularly short-term business loans, can be valuable for entrepreneurs.

If you want to make sure that your business is able to cover essential expenses during difficult periods, it’s important to learn how different kinds of borrowing can help. However, you’ll also want to learn about the risks that come with different borrowing strategies, so that you can choose the option that’s likely to be best for your business. So how do short-term business loans compare to other financing options and how can they help entrepreneurs succeed?

What are Short-Term Business Loans?

Shorte-term business loans or short-term working capital loans provide capital for businesses that is paid back over a short period of time, usually less than a year. They are typically used to fund immediate needs, like purchasing inventory or ramping up marketing. However, working capital loans can also be useful for businesses that are still struggling to get on their feet. It can take months, or even years, for some businesses to start turning a profit. Working capital loans can help ensure that your business has the capital it needs while you are waiting for revenue to overtake expenses.

How are Short-Term Business Loans Different from Long-Term Loans?

A short-term business loan is an alternative financing method in contrast to a more conventional long-term loan, which you typically seek through a bank. It’s important to realize that these are very different borrowing strategies. Long-term loans are paid back over a term that may last multiple years, and are more specific in scope than a short-term loan.

Seeking a long-term loan will require you to come in with a detailed plan for how you will spend the loan money if it is approved. If the bank offers an SBA loan, it will be subject to certain rules that control the way the funds are used. Conversely, short-term business loans are intended to help fund the everyday needs of a business, which can be unpredictable and defy set funding plans. Working capital loans do not have the same usage restrictions as short term bank loans, leaving you free to use the capital as you need it.

The flexibility of working capital loans can help small businesses who find themselves in unusual circumstances. Since new businesses typically have very tight budgets, a single mistake can put them in jeopardy. For this reason, many businesses use short-term business loans to help deal with emergencies without being derailed.

There are certain circumstances under which taking out a long-term loan makes sense, but there are others where a working capital loan can be far more useful. When deciding on the right borrowing strategy for your business, be sure to weigh the pros and cons of each option carefully.

Making the Choice Between Short-Term Loans and Long-Term Loans

The best way to decide between taking out a short-term businessl loan and applying for a long-term loan is to do a side-by-side comparison of each. Begin by considering the amount of time for which you will need the money. Long-term loans can be useful if you need capital for projects that last an extended period of time, but working capital loans are particularly useful for quick capital needs.

It’s important to recognize that differences in terms affect the amount you pay in interest. Short-term loans may have higher interests rates than long-term loans, but with the longer term you may end up paying more interest in the end. That’s because the longer term gives the interest more time to accrue.  

Another appeal of a short-term loan is the certainty. It’s easier to predict what your finances will look like a few months in the future than it is to know how your business will be doing a year or two years in the future. You may regret having that long-term loan down the line.

Plus, as an added bonus, paying off short-term loans is a fast way to boost your credit rating. This will help lend credibility to your business, and may help you qualify for other borrowing strategies in the future.

At Mulligan Funding, you can get a short-term business loan that requires only small daily payments for a period of 8-10 months. This can make it much easier to retire your debt, since many long-term loans last longer and require large lump sum payments every month. You can give interest less time to accrue by paying your loan off in small amounts each day instead.

Short-term business loans tend to be easier to acquire, depending on where you apply for them. Companies like Mulligan Funding will approve working capital loans as long as you have a minimum of six months in business, whereas most long-term loans require at least two years. A long-term loan through a bank will also require you to put up collateral, and you may need to already have perfect credit. Typically, short-term business loans do not impose such rigid standards on applicants, which results in higher approval rates and shorter turnaround times.

Every dollar you have must be spent judiciously if you want to run a profitable business, but it’s impossible to account for every possibility. Despite your best efforts, you may find yourself dealing with forces beyond your control. If you need emergency funding for unexpected expenses, be sure to consider all of your available borrowing strategies. Knowing when to apply for a long-term loan and when a short-term business loan makes more sense can help you borrow with confidence and retire your debts effectively.

Call Mulligan Funding at 855-326-3564 to discuss your financing options today!

The information shared is intended to be used for informational purposes only and you should independently research and verify.

Note: Prior to January 23, 2020, Mulligan Funding operated solely as a direct lender, originating all of its own loans and Merchant Cash Advance contracts. From that date onwards, the majority of funding offered by Mulligan Funding will be by Loans originated by FinWise Bank, a Utah-chartered Bank, pursuant to a Loan Program conducted jointly by Mulligan Funding and FinWise Bank.