Which is a better deal, Long Term or Short Term Financing?
Every person or a business that is about to start up or subject to improvement
do really needs to have sufficient funding on their hands to fulfill and achieve the business that they are dreaming about. But, unfortunately, not all business owners have enough funds
to do what they want to do for their business. At that time, financing or loan will be contributing a big role to the business and the owner will now think about if they will avail the Short-term Financing or Long-Term Financing.
Literally, short-term and long-term financing has a big difference. Like, the requirements, interest, and of course the repayment length period.
This kind of loan need to get repay typically within 3-18 months, but most of the time it is less than a year. It also has few eligibility requirements but a high approval rate. Short-term loans sometimes may not require any collateral. And of course, it has lower interest and low-risk financing. Because of that, most small firms or businesses can easily access this kind of financing.
ADVANTAGES OF SHORT TERM LOANS
In a short period of time, the application for the short-term loan can be approved. In this case, it is very helpful for an emergency scenario when you need to pay or settles your transactions. This is can also be done online or over the phone.
OPPORTUNITY FOR BORROWERS WITH BAD CREDIT
Credit history is not emphasized by the short-term lenders. The more important is that they have proof of steady income and employment. The other factor is that the debtor should have the complete bank account information and prove that they don't have any outstanding loans.
Flexibility is one of the advantages of a short-term loan because it is very helpful when you need cash immediately and offers short-term commitment.
DISADVANTAGES OF SHORT TERM LOANS
HIGHER INTEREST RATES
This is one of the disadvantages of a short-term loan, the high-interest rate. This means that the debtor will be paying the high interest for a shorter time than with a long-term loan.
POTENTIAL DAMAGE TO CREDIT SCORE
As long as the debtor repays the short-term loan on the said date that they agreed with the lender, it can possibly boost the credit score. But, failing with the repayment agreement will definitely damage the credit score.
For long-term financing, the shortest time that the loan should get repaid is typically 3 years and the longest is up to 25 years. It also has high eligibility requirements but with lower approval rates. Collateral is needed in this kind of loan. Not like with a short-term loan, a long-term loan is not that easy to access funds because you will wait for a longer time. Yes, it has lower interest rates but the overall repayment is higher.
ADVANTAGES OF LONG TERM LOANS
Increase the flexibility of an individual's limited capital by granting for its distribution over multiple investments, and minimizing the immediate impact on operational cash flow.
It is very important to business owners to build a business credit than to their personal credit.
Paying on time with long-term loans will build a business or personal credit score.
DISADVANTAGES OF LONG TERM LOANS
HIGHER INTEREST RATES
The interest rate for long-term loans is much higher than the interest rate of short-term loans.
GREATER INTEREST COST
The debtor will pay more over the life of the loan. And that is increased by the length of time that the debtor will be paying the higher interest rate.
Short-term or long-term loans are very helpful in different ways and businesses, and we know that it's difficult to know which option is the right one. But, at KSB FUNDING SERVICES LLC, we can help you whether it is short or long-term loans. We are here to provide funding for your new or growing businesses.