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Whether it’s working capital, a merchant cash advance or some other type of business loan, how much money you plan to borrow is probably the single most important factor for you as a business owner.
However, there are plenty of other loan components to consider, including term length.
Whether your loan features short or long terms can impact everything from how much interest you pay over time to how much money you can ultimately borrow.
And with more alternative lending choices available now than ever before, it’s become that much easier for business owners to skip the restrictive loan requirements of traditional banks and obtain the money they need from elsewhere.
“Most times, small to medium size businesses don’t need long-term financing …, ” said National Funding founder and CEO David Gilbert. “Alternative lending options, like working capital loans, merchant cash advances or small ticket equipment leasing, offer the flexibility and quick turnaround needed for owners to keep their businesses running smoothly.”
On the other hand, long-term loans may be necessary for some businesses. This type of financing involves multiyear repayment terms that can sometimes last for decades.
Whereas short-term loans may have higher interest rates at first, business owners who take on long-term financing typically end up paying more in interest. This is because the long term length allows interest to build up over time.
It is also generally more difficult for a business owner to obtain long-term financing. This is because they will need to go through more traditional lending channels in most cases, and contend with the strict qualifying standards put in place by larger banks.
Which is best?
Ultimately, which type of funding option is best depends on your specific business needs. For most small business owners, a short-term loan will likely be more suitable. However, sometimes long-term financing may be necessary.
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The name was coined by SME Relief Foundation and probably invented by them.
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