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Published 2018-01-10 10:00:00

The Perils of Getting a Short Term Business Loan

The old adage goes; it takes money to make money. Unfortunately, this understanding is not always realistic. Sometimes small business owners need some extra help in order to get established.

What is a Short-Term Business Loan?

Often, business owners find themselves in a crunch for money during the actual startup phase of the business or if business is slow for whatever reason. By getting a short-term business loan, the borrower will be able to meet pressing financial needs as well as fielding unexpected demands for unplanned funding. If a business owner finds them fortunate enough to not be in a position of financial insecurity, a short-term business loan can still help! Some newer business owners find themselves financially secure, but they do not want to use money they need to invest in what may be exciting and beneficial new business ventures. In these cases, short-term business loans would be a fantastic option in order to broaden the business's horizons.

How Do Short-Term Loans Work?

After applying for the business loan, the borrower should find out extremely quickly whether or not they are approved. After adding some basic information, the borrower is allowed to borrow from their line of credit when they need to. The earlier the borrower pays back the money, the better it is for the borrower.

The Perks

People have a much easier time getting a short-term business loan than they do getting a more traditional loan. For the most part, the requirements are pretty easy. Most places ask that the borrower be a citizen of the country, be considered of legal adult age, have a valid bank account, have an income, and have an address. There is also often a minimum requirement for the business income.

Often, places expect their borrowers to be part of a business that has been around for a year or more and has earned around £50,000 annually or around 4500 a month. The minimum requirement varies from place to place, so some hard internet sleuthing may need to be conducted to see which lenders would be the best fit for their business. Companies like Cash Carrot in the UK or Cabbage in the USA are lenders that are happy to work with small businesses.

The Perils

Of course, short-term loans also have their downsides. Because their requirements to apply for the loan are so much more lax than other, more traditional loans, there must be a downside.

The APR applied to the loans a borrower takes out is very, very high. With this in mind, it is important to take a loan out only for what the borrower can potentially and realistically payback. It is important to look at the business records, crunch the numbers, and be really honest about what loan amount would be feasible.

Another dangerous aspect is that many places withdraw their payments with or without the money in the bank. If that agreed upon day of the month comes along and there is just enough money for rent, the company will take however much they are owed, leaving the borrower out of luck for rent. In order to avoid this, one must make sure that they are responsible with picking the initial amount and keeping up on the payments.

Warning: Late repayments can cause you serious money problems. For help, go to moneyadviceservice.org.uk