It goes without saying that a business is doomed to go under without proper funding. Small companies are even more prone to dying out, at least in the beginning, if funding isn’t injected into them.

Nowadays, entrepreneurs can enjoy all the benefits of short term business loans, money lent to them with the purpose of keeping their small businesses alive or making them grow at a more alert pace.

If you’re a business owner, you probably were in the situation in which you realised that without a loan, your company would have little to no chances of survival. Short term loans have both pros and cons, and we’ll show them all to you in the following sections.

The Pros

  • Quick funding

Short term loans provide immediate aid to business owners that need it. The process is quite short, and the requirements are easy to fulfil. To give you a hint of how quick the funding is, the approval period of a short term loan can be 24 hours.

That, of course, does not apply to a large loan. Bear in mind that you can use this money to seize some opportunities; they’re not only for worst-case scenarios (going bankrupt or risking closure, for instance).

  • They are given to people with bad credit score

Not only are these loans given in a matter of hours (depending on the policy of the lender, really), but they are handed out to people who would be rejected by banks on account of their low credit score.

In this light, short term loans are life-savers. Given that they are short-term, creditors know that you will be able to pay the loan back, even if your credit score is a little low.

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  • Can be given for a variety of purposes

You can use the money from a short term loan for pretty much everything you can think of, as long as it’s for your business. You can use it to invest, for example, in something that you are positive will be profitable in the future.

You can buy equipment, pay the wages of your employees, save your company from the edge of the grave, etc. No matter what you need, you’re set with a short term loan.

The Cons

  • Smaller sums of money

A short term loan does not provide too much money, and that’s the harsh truth. If you need more than $1000 or $1500, in some cases, you’re probably going to need a full-blown bank loan.

Bigger sums of money are not given out as a short term loan because of the nature of the loan, which has to be repaid in less than one year.

  • High interest rates

Many lenders know that, once you’re looking for short term loans, you’re probably in dire straits. Unfortunately, they take advantage of it and rob you blind with interest rates. It’s very important for you to do some extensive research.

This way, you can at least make sure you’ll be going with the one that will take the least from you. With a high interest rate, you can end up paying double the sum you’ve been given.

That doesn’t make any sense, of course, but this is how finances work.

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  • Other strings attached

Apart from the high interest rates, you may be required to pay some other additional fees imposed by the lender (depending on each lender).

  • Risk of losing the collateral

Short term loans are usually secured by collateral, even though they’re basically to be repaid within a few months. Should you default, you could lose your car or whatever it is you secured the loan on.

People seem to think that secured loans are so much better than their unsecured peers. It depends on how good you are with money, honestly. If you’re 100% sure you can repay the loan, you should get a secured one.

If not, get an unsecured loan. If possible, always get short terms loans without any collateral attached to them. There’s no way you will default on a loan like this. It’s almost impossible, given that the sum of money you’ve borrowed is quite small.

Conclusion

Loans with short term make sense for small business, but they also have some unpleasant downsides. If you have a financial advisor in your company, it would be a good idea for you to consult with him/her before making a decision.

If you don’t have an advisor, you can speak to one of our expert consultants at Australian Lending Centre by calling 1300 138 188. Make sure you ask the right questions so that the answers will be as informative as possible. The future of your business is in your hands.

If none of the cons above apply to the loan you’re about to get, then you’ve hit the jackpot. A little research and comparison will help you find just the right short term loan for you.