The Benefits of Short-Term vs. Long-Term Financing

When you need access to working capital and you’re ready to apply for funding, you don’t have a lot of time to weigh your options. You need something that works, and that will work quickly without a lot of effort. We’re here to give you your solution. Well, we can at least give you suggestions for your solution.

To do this, we’ll help you understand the difference between short and long-term financing and the benefits of each to determine which is better for you.

Understanding the difference between short-term and long-term financing

It is very common to think that short-term financing means you will undergo shorter payment terms and possibly higher fees.

Short term-financing actually got its name because of the short period of time that you receive funding from a lender. For reference, any funding period of less than one year is deemed short-term. Rates, fees, and others will vary based on your chosen lender.

To read more about short-term funding, check out our blog “How to Get Short-Term Funding”.

Long-term financing on the other hand is of course any type of funding that extends past one year. The reason for this is that the amount of funding is greatly increased when compared to the short-term, and therefore realistically takes more time to repay.

Examples of long-term financing include bank loans, bonds, leasing, and other forms of debt financing.

What are the benefits of short-term financing?

We covered the benefits of short-term financing in a recent blog, “How to Get Short-Term Funding” if you’d like to read more. Here are our concluded advantages of this type of funding:

1. You can still get funding even if you’ve been denied by a bank to the SBA.

Banks are quick to deny you, especially if you have poor credit or a rollercoaster financial history. We are more open to who we accept and generally offer to fund all business owners who come our way. We may however ask for a financial plan to see how the capital will be managed, or for some collateral to show you are reliable.

Do you have poor credit and need funding? Apply with us today!

2. You can bridge cash flow gaps.

Cash flow gaps are commonly seen in businesses, especially those that are seasonal, but they are now more prominent than ever because of the pandemic. Sometimes businesses seek short-term funding simply because they need a bit of capital to get them over the next hump of business; that may include paying invoices, buying new equipment, hiring new employees, and more. If you don’t have the cash to pay for these things, then your business cannot be maintained or grown.

3. You can handle operational costs more easily.

Operational costs occur more often than you’d think. When your needed equipment malfunctions or you need new tools to carry out your business tasks, short-term funding is a great option. Think of operational costs as anything relevant to your daily to-do list; if you don’t have X, then you can’t do Y.

4. You can feel prepared for emergencies, or mitigate them when they happen.

Emergencies are the furthest thing from “planned for”. When they occur, the majority of the time you are not ready for it, nor can you solve the issue immediately. That’s where financing comes into play. Short-term funding can provide you with a bit of working capital to mitigate the emergency or prepare you for an unanticipated, upcoming one.

What are the benefits of long-term financing?

1. You can purchase large assets.

The more valuable your assets are, the more valuable your business is. In addition, the more crucial advantage is being able to reap the benefits of the assets you own, whether heavy machinery, technology, or other.

2. You can be better prepared for long-term initiatives.

Long-term financing means long-term strategies. Companies that choose this option are able to prepare for the future, set goals, and ensure a solid return on investment. This will enable you to take risks

3. You can build your business credit.

By acquiring long-term financing, you are agreeing to pay off a certain amount of capital with said rate applied to it. In simple terms, you are building credit by repaying a lender, just the same as you build credit when repaying credit card debt. The longer you prove your sustainability in payments, the more you can be trusted by lenders.

4. You can have greater flexibility.

When it comes to decision-making for your business, there is a sense of security about being able to confidently purchase large assets, hire new employees, manage financial risk, create partnerships, and more. This is all the more possible with long-term financing, a solution that gives business owners the power to make impactful decisions.

FAQ for short-term and long-term financing

Why would I want to choose short-term financing?

Short-term funding is ideal for businesses that are just getting off the ground. It is also great for building credit to secure bigger, long-term funding in the future.

Why would I want to choose long-term financing?

Long-term financing is excellent for those who want to take bigger risks in their business, make long-term investments, purchase big assets, or conserve operational cash flow.

Are interest rates higher with short-term or long-term financing?

Short-term funding typically has higher interest rates because you are not spreading out your payments over a long period of time as you would with long-term financing. However, depending on the rates and the term, a business owner could end up paying more in interest over time.

How fast can I get short-term funding?

This varies per lender. With us, you may be able to receive working capital within 48 hours after applying.

How fast can I get long-term funding?

Our streamlined funding allows business owners to gain funding in a few short days after submitting an application.

If you still have questions about short-term or long-term financing, we would love to have you talk with a financial expert on our team. Our specialists can help you better understand the differences, decide which is best for you, and then walk you through the entire funding process.

Let’s grow together. Apply for funding today.