The lack of access to cash flow and sufficient working capital can severely hinder the success and growth of a business. One of the most effective ways of addressing this challenge for established businesses is through a term loan. A term loan allows a business to gain access to funds that can be used to pay off higher-interest debts or quickly take advantage of an investment opportunity.
Until recently, there were only two main options for term loans: short-term and long-term. However, recent developments have broadened the spectrum for term loans, allowing lenders to offer medium-term loans, as well as short and long. Here, we will break down the three types of term loans:
How does a short-term loan work?
Businesses that are in need of immediate cash flow to make large-scale business purchases or to establish a business line-of-credit, often benefit from a short-term loan. Short-term loans have terms that range from six months to a year, and require daily or weekly payments, allowing businesses to pay down their balances quickly.
Here are a few advantages associated with short-term business loans:
- Enables businesses to build business credit.
- Promotes rapid growth for businesses.
- Quick repayment schedule.
How does a medium-term loan work?
Businesses that are in a period of rapid growth and expansion, also known as ”growth mode,” can benefit from a medium-term loan. Medium-term loans typically have a term that lands between two and five years, depending on the amount and repayment schedule. Primarily used for purchasing needed equipment in order to further grow a successful business, cash flow allotted from a medium-term loan helps businesses make improvements without having to spend years saving up funds.
Here are few advantages associated with medium-term business loans:
- They can be secured (require collateral) or unsecured (no require collateral).
- They offer tax benefits that can offset high interest costs.
- They help successful businesses continue rapid growth.
How does a long-term loan work?
Businesses that are looking for funding in order to make a large purchase can find it through a long-term loan. Long-term loans can range from 10, 15, or even 25 years, and loan amounts can range anywhere from a few thousand dollars to multiple millions of dollars. These loans are typically utilized for a specific purpose, such as purchasing equipment, machinery, real estate, or construction materials.
A few advantages associated with long-term business loans are:
- Capital to make large business investments and purchases.
- Longer repayment schedule.
- Helps businesses sustain long-term business growth.
Running a successful business isn’t easy – so don’t go it alone. You’ll need a financial partner who will help your business grow to new heights.
Author: Your FundingTree Website: www.YourFundingTree.com