There are key advantages and disadvantages to short-term loans for businesses. Often times, small businesses need a quick, short-term infusion of cash. Although never to be taken lightly, short term loans can be an advantageous option for your business needs. They are usually easy to obtain because they don’t have stringent approval credentials. Consider these advantages and disadvantages before applying for a short-term loan:
Short-term Loans: Advantages
People apply for short-term loans for a variety of reasons. Some of the most common are the following:
- Expansion of your growing business, such as the acquisition of a new facility
- Taking advantage of seasonal trends typical in your line of business
- Operational cash for ongoing operations and bills due when business is temporarily slow
- Collateral security generally not needed
- The short-term nature of the loan means you’ll be out of debt quickly
- Such a loan, when paid off, can improve your credit rating
Short-term Loans: Disadvantages
One should also consider a number of drawbacks when thinking about getting a short-term loan. You should know whether you have the capacity or ability to pay it back on time. The last thing any small business wants to have is to become entrapped in a downward-spiraling debt cycle. Here are a few specific drawbacks:
- Short-term loans can be some of the most expensive types of loans. Lenders apply relatively higher interest rates to your principal.
- Periodic repayments, sometimes weekly, can be troublesome to meet if your company has inconsistent or declining sales
- If you fail to pay back the loan, your bank account and possessions can be put in jeopardy.
Final Word
In many cases, short term loans Mississippi are a good choice for small businesses that are temporarily in a pinch for cash. This is especially true if the business does not qualify for traditional lending options. However, one should always consider their capacity or ability to pay or they may end up way deep in debt.
