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Short Term vs. Long Term Loans

What are my short-term financing options?

Many companies often need a short-term injection of cash, whether it’s to get a new business off the ground, maintain cash flow during a slow season, or launch a new venture or marketing scheme. Short-term financing provides that cash flow with shorter repayment terms (frequently as short as three to six months) than a traditional loan and a higher interest rate. Common short-term options are business credit cards, merchant cash advance, purchase order financing, microlending, revenue based financing, and traditional bank loans with short repayment periods.

How do short-term and long-term lending options differ from one another?

Short-term lending options generally have higher interest rates than long-term options. For loans with a short repayment term, the overall cost can still be less than a long-term loan because there are fewer interest payments. But if you carry high balances on lines of credit and credit cards, or if you roll over a loan from one lender to another, the high interest rates can become onerous. This is especially true for lines of credit with adjustable interest rates, which can see substantial changes in interest payments over the course of a year. Generally, short-term loans should only be used when you are confident you will be able to repay them within the planned time frame; otherwise, interest rates and monthly payments may get out of hand.

Are small business credit cards better than a small business loan? How do I get a small business credit card?

Although business credit cards generally have higher interest rates than a loan, they provide your small business with flexibility, and they can also help build your company’s credit history to improve your chances of securing a traditional loan on favorable terms. Applying for a small business credit card is similar to applying for a personal card, so make sure your personal and business credit report is in order before you apply. Some cards may also require a personal guarantee, especially if your business is young.

When applying, decide what needs you want your card to fulfill (low APR? rewards? no annual fee?) and read the fine print for each card—you don’t want to be misled by temporary, “teaser” terms that only last a few months, and it’s important to note that the recent protections on personal cardholders under 2009’s Credit CARD Act, such as prohibitions on sudden interest rate hikes, don’t apply to business cards, although many lenders have extended those protections to their business cards as well.

Biz2Credit Logo Ked Harley is a writer and researcher for Biz2Credit, a leading credit marketplace connecting small- and medium-sized businesses with small business loans, service providers, and complementary business tools. She is also a self-confessed coffee addict working out of New York City. Her interests include business and finance, world news, food, and travel, and she enjoys yoga and running in the park