{"id":903,"date":"2022-06-26T08:16:46","date_gmt":"2022-06-26T08:16:46","guid":{"rendered":"http:\/\/www.unitedfinances.com\/blog\/?p=903"},"modified":"2022-07-10T15:55:18","modified_gmt":"2022-07-10T15:55:18","slug":"benefits-of-short-term-loans-vs-long-term-loans","status":"publish","type":"post","link":"https:\/\/www.unitedfinances.com\/blog\/benefits-of-short-term-loans-vs-long-term-loans\/","title":{"rendered":"Benefits Of Short Term Loans Vs Long Term Loans"},"content":{"rendered":"<p dir=\"ltr\"><strong><img decoding=\"async\" style=\"height: 351px; margin-left: 0px; margin-top: 0px; width: 624px;\" src=\"https:\/\/lh4.googleusercontent.com\/J3V2XkS1a0noO5ycJAYWHzZyRLRvtz7ioCspD5lxzul_aOkBwWbDzU4wi2jP0eVUxKyU9bZkVih24Te-ECWqvD8BjPb9MNqnuK-xRJUZaAVn5RnP33I7IIGC1axoul2wjHLzUcbM\" \/><\/strong><\/p>\n<p dir=\"ltr\"><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 12pt;\">In the life of your business, you will need help from the bank for your funding requirements because, at some point, equity is just not going to be enough. To remedy this common problem, you can either get avail of a short-term loan or a long-term loan from banks depending on your requirements.<\/span><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 12pt;\">\u00a0<\/span><\/p>\n<p dir=\"ltr\"><strong>What Is It?<\/strong><\/p>\n<p dir=\"ltr\"><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 12pt;\">Before going into the details, you first need to know your foundations, which is the definition of both loans:<\/span><\/p>\n<ul>\n<li dir=\"ltr\">\n<p dir=\"ltr\"><span style=\"background-color: transparent; font-size: 12pt;\">A <a href=\"\/short-term-loans\/\">short-term loan<\/a> is a loan that usually has a tenor of a year or 365 days to fund mainly working capital needs. This also means you have a year to pay off the loan, and that is why it is called a short-term loan.<\/span><\/p>\n<\/li>\n<li dir=\"ltr\">\n<p dir=\"ltr\"><span style=\"background-color: transparent; font-size: 12pt;\">A long-term loan, on the other hand, is a loan that usually has a tenor of more than 1 year and can last up to 25 years depending on the amount of the loan. Long-term loans are usually used to fund capital expenditures of the company.<\/span><\/p>\n<\/li>\n<\/ul>\n<p dir=\"ltr\"><strong>What Are The Benefits of Short-Term Loans?<\/strong><\/p>\n<p dir=\"ltr\"><strong>1.<\/strong><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 7pt;\">\u00a0 <\/span><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 7pt;\">\u00a0\u00a0 \u00a0<\/span><strong>Lower Interest<\/strong><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 12pt;\">\u00a0<\/span><\/p>\n<p dir=\"ltr\"><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 12pt;\">Since you are only borrowing the money for a year or less, banks are exposed to a lower level of risk. With lower risks, this also entails a lower cost of borrowing. Because of this, the interest fees for <\/span><a style=\"text-decoration-line: none;\" href=\"https:\/\/www.cashngo.com.au\/short-term-loans\/\"><span style=\"background-color: transparent; color: #1155cc; font-family: times new roman; font-size: 12pt;\">short term loans<\/span><\/a><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 12pt;\"> are significantly lower compared to long-term debt.<\/span> <span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 12pt;\">If you want lower interest rates, then it\u2019s best to get short term loans.<\/span><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 12pt;\">\u00a0<\/span><\/p>\n<p dir=\"ltr\"><strong>2.<\/strong><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 7pt;\">\u00a0 <\/span><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 7pt;\">\u00a0\u00a0 \u00a0<\/span><strong>Faster Approval<\/strong><\/p>\n<p dir=\"ltr\"><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 12pt;\">Short-term loans are usually used for working capital funding needs or as bridging loans. Because of this structure, it\u2019s easier for smaller businesses to get approved for short-term <\/span><a style=\"text-decoration-line: none;\" href=\"http:\/\/www.unitedfinances.com\/blog\/the-benefits-of-banking-with-a-credit-union\/\"><span style=\"background-color: transparent; color: #1155cc; font-family: times new roman; font-size: 12pt;\">loans<\/span><\/a><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 12pt;\">. Since it\u2019s also typically a smaller amount with a way lesser tenor as compared to long-term loans, banks give a bigger leeway for this.<\/span><\/p>\n<p dir=\"ltr\"><strong>3.<\/strong><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 7pt;\">\u00a0 <\/span><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 7pt;\">\u00a0\u00a0 \u00a0<\/span><strong>Easier Documentation and Implementation<\/strong><\/p>\n<p dir=\"ltr\"><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 12pt;\">Compared to long-term loans, short-term loans have lesser documentation requirements and shorter implementation process. With long-term loans, you usually need to have a term loan agreement and collateral to secure the loan. However, with short-term loans, you don\u2019t need this long agreement. In addition to that, banks don\u2019t usually ask for collateral when you get a short-term loan since it will be paid within a year.<\/span><\/p>\n<p dir=\"ltr\"><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 12pt;\">On top of that, <a href=\"\/short-term-loans-no-credit-check\/\">implementation for short-term loans<\/a> have a shorter process as well since the disbursement is usually not as big as long-term loans. So, if you need a credit line to bridge your funding quickly, you might want to opt to apply for short-term loans instead of long term loans.<\/span><\/p>\n<p dir=\"ltr\"><strong>4.<\/strong><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 7pt;\">\u00a0 <\/span><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 7pt;\">\u00a0\u00a0 \u00a0<\/span><strong>Allowable Repeated Borrowing<\/strong><\/p>\n<p dir=\"ltr\"><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 12pt;\">One of the short-term credit lines available for businesses is what you call a revolving credit line. A<\/span><a style=\"text-decoration-line: none;\" href=\"https:\/\/www.investopedia.com\/terms\/r\/revolvingcredit.asp\"> <span style=\"background-color: transparent; color: #1155cc; font-family: times new roman; font-size: 12pt;\">revolving credit line<\/span><\/a><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 12pt;\"> is a line that can be replenished up to the agreed limit as agreed between you and the bank. This means that if you have a revolving credit line worth $10 Million, use up $ 10 Million, and pay $5 Million in 5 days, you can borrow another $5 Million again.\u00a0<\/span><\/p>\n<p dir=\"ltr\"><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 12pt;\">This is not possible with long-term loans. Long-term loans do not give you this flexibility. In fact, long-term loans are very rigid in structure. Usually, long-term loans are granted for a specific purpose, and the loan proceeds should be used for that specific purpose only as stipulated in the agreements. Moreover, unlike a short-term loan, it cannot be rolled over once you make partial payments. You need a grant of a new line to loan from the bank again.<\/span><\/p>\n<p dir=\"ltr\"><strong>5.<\/strong><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 7pt;\">\u00a0 <\/span><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 7pt;\">\u00a0\u00a0 \u00a0<\/span><strong>Control Your Cash Flows<\/strong><\/p>\n<p dir=\"ltr\"><strong><img decoding=\"async\" style=\"height: 416px; margin-left: 0px; margin-top: 0px; width: 624px;\" src=\"https:\/\/lh6.googleusercontent.com\/PIj8wR-S5emDB9g3D-aipPVK4fCDG29Z1Si2xDOhUS0Zx5aPTGY0nWEuExw-SP0nuahi-cNIZ4dgEm4WPek3aoMDcFwRUIvmBFtHHgsUlSaHWzQNj5saH3rnpTSdzGQwBtr8OXA6\" \/><\/strong><\/p>\n<p dir=\"ltr\"><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 12pt;\">Another product of the bank with regards to short-term borrowings is receivables financing. Every company has receivables from its customers if they give credit terms to customers. With a bank, they can purchase these receivables and give you the money owed to you by customers earlier than expected. Then, the bank will just get a percentage fee for every invoice purchased by the bank.<\/span><\/p>\n<p dir=\"ltr\"><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 12pt;\">By using the receivables financing product of the bank, you will be able to control your cash flows and promote healthy <\/span><a style=\"text-decoration-line: none;\" href=\"https:\/\/www.thebalancesmb.com\/cash-flow-how-it-works-to-keep-your-business-afloat-398180\"><span style=\"background-color: transparent; color: #1155cc; font-family: times new roman; font-size: 12pt;\">cash flows<\/span><\/a><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 12pt;\">. You can use these receivables as working capital instead of spending for it out of pocket once again.<\/span><\/p>\n<p dir=\"ltr\"><strong>Conclusion<\/strong><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 12pt;\">\u00a0<\/span><\/p>\n<p dir=\"ltr\"><span style=\"background-color: transparent; color: #000000; font-family: times new roman; font-size: 12pt;\">Meeting your funding requirements is your goal at the end of the day. It\u2019s helpful to know the difference between the two so that you can choose the right one for you. There are many products that you can use to meet your working capital funding needs. Now that you\u2019ve seen the comparison between the two, you can have a better judgment on which one will really help your business grow.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In the life of your business, you will need help from the bank for your funding requirements because, at some point, equity is just not going to be enough. To remedy this common problem, you can either get avail of a short-term loan or a long-term loan from banks depending on your requirements.\u00a0 What Is &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/www.unitedfinances.com\/blog\/benefits-of-short-term-loans-vs-long-term-loans\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;Benefits Of Short Term Loans Vs Long Term Loans&#8221;<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/www.unitedfinances.com\/blog\/wp-json\/wp\/v2\/posts\/903"}],"collection":[{"href":"https:\/\/www.unitedfinances.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.unitedfinances.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.unitedfinances.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.unitedfinances.com\/blog\/wp-json\/wp\/v2\/comments?post=903"}],"version-history":[{"count":3,"href":"https:\/\/www.unitedfinances.com\/blog\/wp-json\/wp\/v2\/posts\/903\/revisions"}],"predecessor-version":[{"id":1735,"href":"https:\/\/www.unitedfinances.com\/blog\/wp-json\/wp\/v2\/posts\/903\/revisions\/1735"}],"wp:attachment":[{"href":"https:\/\/www.unitedfinances.com\/blog\/wp-json\/wp\/v2\/media?parent=903"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.unitedfinances.com\/blog\/wp-json\/wp\/v2\/categories?post=903"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.unitedfinances.com\/blog\/wp-json\/wp\/v2\/tags?post=903"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}