When it comes to borrowing money to support business growth, deciding how much you need is likely to be your top priority. However, there are many other financing requirements to take into consideration, and the term length of your loan can be critical. Whether your loan features short or long terms may impact everything from how much interest you pay over time to how much money you can ultimately borrow.
Because they are repaid over an extended period of time, the most common long-term loans include mortgages, start-up business loans, student loans, and home improvement loans. A long-term loan is credit based: the better your credit record is, the better the interest rate you will receive. The amount of the loan will also be based on your credit history as well as your income. This type of loan can help you establish or improve your credit, unlike many short-term loans.
Long-term loans are generally secured through a bank or credit union, and they can either be secured or unsecured. A secured loan requires a form of collateral; an unsecured loan does not require any collateral. Since the lender incurs more risk, an unsecured loan typically has a higher interest rate. For small businesses, long-term loans are typically collateralized with a tangible asset that lenders can see and touch, such as a building, land, or equipment.
The benefits of long-term loans to small business owners include lower rates than short-term loans and the stability of knowing what your payments are month to month. You may have greater flexibility with payment options, such as a fixed interest versus an adjustable rate mortgage loan.
On the other hand, it is often more difficult for a business owner to obtain long-term financing because of the stringent qualifying standards put in place by traditional lenders. Compared to short-term financing, these loans are also more difficult to get out of if your business circumstances change.
Short-term loans offer small business owners the option to quickly get the financing they need to bridge cash flow gaps, overcome setbacks, or take advantage of business opportunities.
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Short-term loans are generally more expensive than long-term loans, with higher annual percentage rates (APR) and origination fees that are spread out over a shorter period of time. Some lenders, such as those offering merchant cash advances, may require repayments daily or weekly as opposed to a monthly basis, which can be challenging for small business owners to keep up with.
However, the growing number of alternative lending choices is making it easier for business owners, even startups and those with less than ideal credit, to obtain the working capital they need. Summit Financial Resources bridges the gap between easy but expensive short-term financing and lower-cost, harder-to-get long-term loans.
Asset-Based Loans for Small Businesses
We offer working capital loans for small to medium-sized businesses that involve using your accounts receivable and other assets as collateral. We can mix and match from a variety of product options to suit your needs, including invoice factoring, asset-based lending, inventory lending, and equipment financing.
Because Summit Financial Resources is not regulated like a bank, we can structure more flexible deals, take more risks, and make funding decisions quickly. Our custom financing solutions feature reasonable rates and a structure that traditional commercial finance sources cannot provide.
When making the decision to take a loan, think seriously about whether you really need it or if you have other financing options. Be sure you can afford to repay the loan and that it won’t compromise your ability to manage existing debt. Finally, understand the terms and consider the consequences if you are unable to pay back the loan.
Ultimately, choosing the best funding option depends on your specific business needs. A short-term real estate loan may be impractical, just as you would not want to be locked into a five-year inventory loan. Either way, it’s important to work with a lender who takes the time to understand your business and partners with you to provide tailored financing programs to help you keep things running smoothly.
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Summit Financial Resources specializes in working capital financing for small to medium-sized businesses that need increased cash flow. We provide working capital financing through invoice factoring, asset-based lending, inventory lending, and equipment financing.