Pros & Cons Of Short Term Loans

Business owners often find themselves in financial difficulty and are in need of short term funds. Also known as a bridge loan, the short term loan is ideal until additional resources are available. When the loan is used in an appropriate manner, it is an invaluable tool for business owners. In times when the money is tight and credit is not easily available, a short term loan can make a huge difference. There are pros and cons of short term loans that need to be considered before making a loan application.

Pros of short term loans

Quick access to funds:

The biggest advantage of a short term loan is its quick access to funds. There is no need for extensive documentation or a background check to get access to funds. You can have immediate access to funds and you do not need to visit the physical branch of different lenders for the same. If you are in need of funds to make the most of a business opportunity, a short term loan will help you right away. Upon approval, you will receive funds instantly.

Available to those with bad credit:

Many lenders in the country only offer a loan to those who have a good credit score. However, a short term loan is also available to those who have bad credit. Short term lenders are lenient on the credit report and they will access the loan considering other aspects like asset values. Your credit score will not hamper your ability to get access to funds.

Flexibility in repayments:

A short term loan is available for a short period of time and it
gives you a range of options for repayments. Hence, you can choose whether you want a 3-month loan or a 6-month loan, etc.

Cons of short term loans

High rate of interest:

The biggest limitation to short term loans is its high-interest rate. As
compared to long term loans, a short term loan has a higher interest rate. It can increase the overall cost of borrowing. This is why a short term loan is an interim measure to refinance towards a traditional loan.

Short tenure:

As the name suggests, a short term loan has a short tenure and it is only suitable for immediate business requirements. You cannot plan a long term venture or an asset purchase with the funds because the loan has to be repaid in a short tenure. If you are in
need for funds for a long duration, you need to consider the traditional long term loan.

Leave a Reply

Your email address will not be published. Required fields are marked *