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If you need financial assistance for your small business, you may consider applying for a term loan. Generally, there are two types of term loans for small businesses – short term and long term loans. In this article, let’s discuss the basic details about each.
Business startup financing
But first, what is a term loan? These are loans that have a fixed length of repayment period. The term may range from 1 year to as long as 10 years or more, depending on the amount of money borrowed. The amortization includes the principal sum of the loan plus the rate of interest.
Short Term Business Loans
Short term loans can be repaid within a year or less. Because of the short repayment period, the amount you can borrow is limited to a smaller value. Short term loans for small business vary depending on the purpose of the loan.
Examples are accounts receivable loans, equity, lines of credit, working capital loans, credit card loans. These loans are ideal for covering projects, marketing campaign expenses, purchasing more supplies, hiring additional workers, and the like.
Long Term Business Loans
Long term business loans obviously provide a lengthier repayment period, from 5 years, 10 years, to years or more. The loan amounts may range $25,000 to as much as $50,000 and above. These loans are guaranteed with collateral, which can be the borrower’s home, vehicle, or other valuable property.
Because of the higher risks involved, lenders are more strict in approving long term loans than short term applications. Aside from submitting collateral, the business owner must also submit an impressive business plan, licensing certificates and financial report (for established businesses).
Your Business Credit History
Regardless of the type of term you choose, your credit history will be a crucial factor. Having an excellent credit rating will enable you to request for lower rates and better deals from lender. On the other hand, a bad credit rating can work against you as lenders usually impose higher rates for customers who are considered as “high risk” clients.
In fact, if you are applying for a long term loan, your application may be declined if you have bad credit. What if you have no business credit to show? In that case, your personal credit rating as the owner of the business will be reviewed.
Irish Taylor is a bussiness loan consultant with Startup Business Loans and has been providing consumers and business owners with startup business financing since 1992. For years she has helped people with credit and loan problems especially pertaining to business start up, SBA loans and Unsecured loans.
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