Taking out a bank loan is relatively common among people, especially among business owners. They usually do it when they are trying to get their companies off the ground or simply because they want to expand their business.
On the other hand, those who are not entrepreneurs will take this step when they want to solve some financial issues. When is the best time to turn to this option? Possibly when you want to deal with some money-related problems that do not require long-term financing options.
If you’re not too familiar with short-term loans, then you’ve come to the right place, because today, we will provide you with some useful information that just might come in handy if you’re considering this option.
Everything You Need To Know About Short-Term Loans
What Does It Represent?
It is also known as a working capital loan and it was created to offer small business owners efficient and fast access to the working capital they need to overcome various short-term financial problems.
Just like with any other loan, you will receive a certain amount of cash in a lump-sum payment and then you will have to pay everything off in a certain period of time, which is usually somewhere between three months to three years.
At times, you may be able to utilize a revolving line of credit that actually comes in the form of a credit line. Most of these lines of credit also have a defined term, but the difference between them and a term loan is the fact that you can use your line of credit when you feel the need to, repay what you’ve employed, and utilize it again while the credit line lasts.
The Benefits Of Short-Term Loans
Short-term loans have many benefits. The financial connoisseurs at nimble.com.au say that one of the biggest advantages of it is a shorter time for incurring interest. That’s a great fact, especially when compared with long-term loans. In that case, the amount of interest paid is drastically less.
Another great fact worth mentioning is especially important to smaller business owners, or people who do not have the best credit scores. How come? Well, it’s because the requirements for these individuals are not too difficult to meet because we are talking about smaller amounts of money, which is not the case with long-term loans.
Furthermore, these loans are not as risky as long-term ones due to shorter maturity dates. A person’s ability (the one who has taken out a short-term loan) to refund a loan is less likely to change drastically over a short period of time.
How Can You Apply For It And The Most Common Types?
If you’re planning to take out a loan for your business, you first have to determine which one is the best for you. Once you figure that out, then it’s the perfect time to apply for it. Now, a lot of people start to feel pressure to get the money as quickly as possible, but you shouldn’t let that bother you, otherwise, your application is not going to be completed the right way.
Just take some time to carefully go through all requirements and everything will be just fine. The most important thing during this process revolves around the documents that must be gathered. You should assemble everything that your lender demanded.
If you provide everything that is necessary, you will show the lender how reliable and responsible you are. Speaking of documents, requirements can differ from one lender to another. Below, we will provide you with the list of things that are the most common:
- Personal background information, for example, education history, names you have utilized, addresses where you’ve previously lived, and criminal record.
- A solid business plan that will showcase the profit and loss, proof of cash flow, as well as the balance sheets from your company
- Your resume
- Personal and business tax returns from the past couple of years
- Credit reports
- Financial statements
- Personal financial statements that are signed
- Business and personal statements from the bank from the past year
- Business registrations and licenses that are connected to your company
- Any franchise contracts, articles of incorporation, commercial leases, or copies of third-party agreements
Now, when it comes to the types of short-term loans, three are the most common, each comes with different fee structures, characteristics, and terms:
- Payday loans
- Car title loans
- Bank overdrafts
To many people, short-term loans seem like a great way to handle a temporary problem, since they are quite convenient and do not involve too many risks. Anyhow, the best thing that you can do is to research all your options before you make any decisions.