The repayment schedule of your financing has a major impact on its benefits. If it’s too short, you can find yourself struggling to make timely payments, whereas you might pay more interest than you have to if the terms are too long.
Don’t worry – we’re here to break down short-term loans vs long-term loans, so you can make the right decision for the future of your business.
Some might think that the only difference between short-term loans and long-term loans is the repayment schedule, but there are a few smaller details that can make one option more beneficial than the other.
Here’s everything you need to know about short-term loans, long-term financing, and choosing which option is best for your business and goals.
What Is a Short-Term Business Loan?
Short-term financing describes loans with repayment periods of less than 18 months. They’re used for opportunities that drive short-term revenue and challenges that you need to handle promptly.
The shortened repayment schedule reduces funding amounts and raises interest rates, although most borrowers pay more interest through long-term financing. Borrowers also have to handle more frequent payments – You can expect daily or weekly payments unless there’s a reason monthly payments would make sense for your business.
What Is a Long-Term Business Loan?
A long-term business loan has an extended repayment period – 2 to 25 years – and higher funding amounts. Businesses leverage this type of financing for multi-year projects, significant investments, or to purchase assets with prolonged lifetimes, such as major equipment.
Interest rates are technically lower than short-term financing, but borrowers still end up paying more interest because of the prolonged repayment schedule. However, the repayment schedule is lighter on your cash flow, as most long-term financing agreements come with monthly payments.
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