Things to Know about Short Term Loans

Short-term loans are a very tempting option, as their original creation was to fill in a gap in the banking industry. They cater mainly to those needing funds to address an urgent business matter or perhaps a personal emergency. In comparison to traditional loans, these are relatively easier to acquire.

Short-term loans are given with little to sometimes no collateral and must be repaid within the year, sometimes within months or weeks, depending on your agreement. Some may require proof of employment, with a bottom-line of how little you can make to be eligible for the loan and some form of relevant identification.

In as little as 24 hours, your loan can be approved. There are quite a few short-term loans available out there. For a more comprehensive review, read through the information published here. Below are just a few to familiarize yourself with the topic:

• Merchant Cash Advances: This option offers small businesses an alternative to traditional loans. The business owner will receive funds as a lump sum from the beginning from a merchant cash advance provider and repay the advance at a predetermined time with a percentage of the business’s sales.
• Lines Of Credit: A line of credit (LOC) is an option open to those already with a bank account with the desired institution. It is a preset borrowing limit that is available to you at any time. You can take money out as long as the limit is not reached. As you repay the money, it can continue to be borrowed.
• Pay Day Loans: Payday loans are short-term emergency loans. They’re relatively easy to obtain and as simple as producing a pay slip. Its major drawback is that it involves high-interest rates, and the entire loan amount, including interest, must be paid in a lump sum on the borrower’s next payday
• Invoice Financing: This is a way of borrowing money based on what your clients owe your business. When approaching the bank, you use unpaid invoices to represent money that clients will pay in the future, and you borrow money based on those amounts.

This article will highlight and address the advantages and disadvantages of offering a short-term loan.

Listed below are three advantages to seeking out a short-term loan:

 1. Rapid Approval

A short-term loan’s most easily recognized advantage is its quick approval time. As stated earlier, it’s the go-to method because cash is usually needed to address urgent matters. Some institutions may avail funds to you in as little as 24 hours.

In addition, the short-term load application process is typically shorter and less rigorous than a traditional bank loan application. With very little paperwork, you can usually complete the process in no time.

 2. No Collateral Is Required

Collateral refers to assets that a bank or financer can accept as security for the loan you want to take. Depending on the purpose of the loan, collateral has been known to take many forms, the most common being real estate.

If a borrower fails to keep up with loan payments (defaulting), the collateral works as a form of protection for the financer. The collateral can be seized as a method of recouping losses.

A benefit of these types of loans is that most do not require collateral from you, unlike with most loans that require you to provide some form of collateral such as your home.

 3. Low Credit Score Requirements

With short-term loans, the credit score requirements are not as strict as other loan options. This helps those with less-than-stellar credit records to source finances as well.

The allure of the above advantages has caused many to jump headfirst into the process, but it is always important to be aware of any disadvantages to put things in perspective. Two disadvantages to acquiring a short-term loan include:

 4. High-Interest Rates

The major drawback to having such a lenient financing alternative is that most of these loans have very high-interest rates. Compared to loans with longer terms, it’s expected to pay significantly more for the same amount.

The only way to avoid this cost is to pay the loan back as quickly as possible. Some financial institutions provide discounts for early repayments. On the other hand, some institutions have prepayment penalties, so it’s crucial to be aware of the fine print before deciding on this point.

 5. Frequent Payments

Most financial institutions will require you to make frequent payments. Payments for short-term loans are usually made weekly or, in some extreme cases, every day. If your business lacks consistent cash flow, taking a short-term loan might become a nightmare for your operations.

Conclusion

Short-term loans are generally convenient for both personal usage and your business. However, it’s also essential to remember the risks involved before diving in. It’s always good to inquire about all the options available to you. You might find that you or your business are eligible for a low-interest loan such as a more flexible repayment option. As always, consult with qualified professionals when making your financial decisions.