If you’re a business owner, you probably know that there are tons of opportunities for both large and small businesses in Colorado. Our economy is booming, making the state a great place to start a business. However, getting the funding to start your business can be extremely costly. Thankfully, business loans can help you overcome that initial financial obstacle to see your new business through! Let’s take a closer look at what you need to know before deciding to apply for a short-term loan.
But First, What Is a Short-Term Loan?
A short-term loan is the type of business capital loan that can provide businesses with quick working capital. Just like most other bank loans, you’ll receive a certain amount of cash upfront. This cash will be repaid to the lender over a set period of time. In addition to that amount, the borrower also has to pay any lender fees and interest as part of the total cost of the loan. The main difference between a short-term loan and long-term loan is that the financing has to be repaid soon, often within two years.
Know How Much It Costs
No matter what type of short-term loan you choose, it is always very important to consider your APR (Annual Percentage Rate). APR is the annual rate of interest that is paid on an investment.
APR is expressed as a percentage that represents the annual costs of funds over the term of the loan. Considering this is important because it directly affects how much your payment will add up to. Another important thing to consider is origination fees and any other charges to your loan, as all of them should be reflected in the APR. It is also smart to find out about the late payment penalties and refinancing options just in case.
Know the Advantages
Please remember that short-term loans are only meant for working capital to tide your business over a short period of time and not meant for a long-term investment. The advantage though is that lending requirements are more relaxed than others, and you will be more likely to get approved. Once you have proof that you will be able to repay in a short-term period. You also may increase the chance to get qualified for larger and longer-term loans in the future.
Another advantage is that the short-term lending could be right for your business when you need an emergency expense. When you may need an emergency expense, the amount with a long-term loan could be a lot more than you need. In a short-term loan, you repay the loan in a year or two and move on to the next thing. The timeline of approval and funding is faster than other loans. Therefore, short-term loans could be appropriate for your business for this reason.
Know the Disadvantages
As well as the advantages, it is also important to know the disadvantages. One disadvantage of short-term loans is that they usually have a higher interest rate. Daily payments could be higher, and you need to make sure the cash flow of your business allows for frequent payments for the period of your short-term loan. Another disadvantage is that there’s a chance that it could be a debt trap. This means, if you’re unable to keep up with the payments, you might have to refinance and loan into a larger payment period continually. In this situation, you will face a higher interest rate and fees, and you will keep owning more and more money. Noting all of these disadvantages is important before starting your short-term loan.
If you’re looking for a short-term loan lender in Denver or have any general questions about short-term loans, contact Bold Funding Group! We specialize in many loan plans, including a short-term loan. Contact us at 303-376-6232 or fill out the application page on our website today to get started!