Short-Term Commercial Financing: the Pros and Cons

Small business owners know sometimes you just can’t get cash fast enough. When a business needs to access funds fast, bank loans can’t always offer the capital needed. Small business financing may require a short-term commercial loan.

Short-term loans are often viewed as dangerous or unwise. Many believe they are loans that can lead unsuspecting borrowers into paying higher interest rates than they expected, leaving them battered and in worse condition than before. 

However, in reality, short-term loans can be a smart financial choice: one where no one is caused to drown in debt. The trick is to determine which short-term business loans are fair and worth your time. As long as you research, examine the fine print, and keep your wits about you, short-term business loans could be of great benefit to you and your company. Without further ado, here are a few of the pros and cons regarding short-term commercial financing.

Pro: Easy Approval

Often, the reason a business chooses a short-term loan, rather than investing in a safer long-term loan, is that they don’t have the time to wait for the extensive loan approval process. Perhaps the business is unable to qualify for a long-term loan. Perhaps, financial bolstering is needed immediately, and the business doesn’t have the time to process a long-term loan. In these situations, short-term business loans demonstrate their usefulness.

Often, it’s struggling businesses that would benefit most from these kinds of commercial loans, but this is not always the case. Perhaps the business has low annual revenue or cash flow, or a short credit history. For them, a short-term commercial loan may be just what they need to stay in business or grow their business. The risks have to be factored in, but the process is typically smooth. Online approval options mean the business could have the loan in just a few days. For any company strapped for cash, this near-immediate commercial loan could keep the business afloat in times of low cash flow.
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Con: Higher Interest Rate/Frequent Payments

Nothing in life is free, as any business owner knows. A short-term loan is fast, but it comes with a price tag. Short-term business loans typically have a much higher interest rate than long-term ones. The funds appear almost immediately, but the long-term cost can be crippling if businesses aren’t careful.

In addition to a higher interest rate, short-term loans often require more frequent payments with higher interest. Businesses that receive steady, frequent cash-flow are more likely to benefit from a long-term loan.

Pro: Immediate Working Capital

If a business is struggling over short-term expenses, such as rent, a short-term loan is a way to get cash flow into the business. Commercial hard money will pay the rent and cover a month’s extra expenses while a business waits for revenue to clear and funds to become available.

Con: The Risk of Debt

As previously mentioned, these loans come with a high-interest rate, so it’s important for any business seeking a short-term loan to be aware of what their company can handle. When the payments are due, if your business is still strapped for cash, you may find yourself in trouble. That’s why having a plan, before applying for business loans, long-term or short-term, is important. If you have to take out yet another loan to start paying off the first, the cycle of debt can quickly get out of hand.

Pro: Opportunity

Short-term commercial loans allow businesses to take advantage of opportunities they might have otherwise missed. Chances worth taking don’t always present themselves at the right time when a business has the sufficient cash flow to make the investment.

Opportunities can disappear just as quickly as they appear, so rather than missing the potential for growth, a business can make the right moves with the assistance of a fast loan. Many business opportunities help generate future income, making that business loan easier to pay off.

After reviewing both the pros and cons of short-term business loans, it’s clear that they’re profitable in some situations, and not worth the risk in others. To determine if a short-term loan will benefit your business, crunch the numbers and analyze your ability to pay off recurring payments. If you feel confident that cash will be coming in soon, a short-term loan may be the best thing for your company’s future.

We look forward to speaking with you regarding your structured business loan or line of credit request. We make sure you receive the capital you need to succeed.  We don’t provide denials only solutions. Call us today to have a free consultation. No dreams deferred, we are “As Is” Loans.