Short Term Business Loans vs. Medium Term Business Loans

There is no question that your business expansion or start-up needs may require that you take out a loan at some point in your career. However, this is where life can get tricky: There are a variety of loan options for you to consider. Among the more obvious ones are short term small business loans, or medium term small business loans. There is good news, as these loans are easier to get than ever. Here's a quick overview on the primary differences between short term and medium term loans, as well as a look at their various potential uses.

What is a short term and medium term business loan?

According to the financial experts at Lantern Credit, "Short-term financing, which typically means financing with repayment terms under 12 months, can vary slightly depending on the lender." Medium term loans, of course, have a longer time frame - usually up to around five years. A short term loan is often not an actual bank loan, but taking advantage of a line of credit. Cash advances or invoice factoring also qualify as a type of loan. Medium loans, by contrast, are usually part of a more formal loan process. You will have to apply, be approved, and receive the money after a longer period of time. Your credit rating is more likely to make an impact here.

What type of loan is best for you?

In addition to the length of time, there are differences between these two types of loans. Short-term loans are usually easier to obtain, have fewer credit requirements, and less paperwork. They are also usually less expensive. The flip side, of course, is obvious: You have less time to pay the loan back since it is over the short-term. Therefore, they are more appropriate when you are absolutely certain that you will have the revenue coming back in to cover the cost of the loan since you will have less flexibility in how you repay it.

What can you use these loans for?

Given the time-frame of repayment, it is important to remember that some uses are more appropriate for certain types of loans. Short term loans are generally more appropriate for short term needs, like cash flow, cash advances, or marketing campaigns that will generate additional business. Medium term loans are often for larger amounts and more appropriate for the purposes of equipment purchases or low-level expansion, like building an addition to your physical location. As you talk about purchasing property, you generally begin to explore the need for longer term loans that have a repayment period beyond five years. At the end of the day, only you can gauge which type of loan is right for you. The answer to this question will vary depending on your specific needs. However, you can take comfort in knowing that there are a variety of financial options out there, and odds are good you can find the right loan for your business.