Majority of small brands will not have adequate in-house capital to continue their day-to-day operations thus the need for a loan. Some will require a onetime loan contract while others every few months. One commonly misunderstood aspect of borrowing cash is the distinguishing elements that exist between a short-term and a long-term loan. The former usually has maturity dates spanning one year or less, which means you have to repay the entire amount no later than that date. On the other hand, long-term financing can latch onto your business for several years.
Short term loans enable business owners to manage business expenses as soon as they pop up. This can be in the form of inventory expansion, land acquisition, and workforce increase among other things. In most cases, small businesses meet the need for immediate injection of funds to capitalize on seasonal changes in consumer behavior and market trend or simply to fill the temporary gaps in cash flow. Short term loans are designed to be temporary financial aid packages that you can quickly repay. This alleviates the need to commit your money and time to paying off the loan for an unnecessarily long period of time.
Long-term loans tend to come with more expensive interest rate terms, which can sum up to hefty amounts over time. It also makes the repayment process more perplexing than it has to be, not to mention the added complexities of keeping the business clear of debt. In a nutshell, the longer the contract goes, the more cash you’ll be paying for interest rates.