Short-Term Business Loans 101

There are different ways to go about getting a business off the ground. An individual might try to raise the capital from friends and relatives that believe in them and their business plan, an individual might tap into his savings or investments for start up capital, or they might try to get a loan. It is not an uncommon thing for entrepreneurs to start their business venture with a business loan. This can help a new business cover its initial start up expenses and give them the needed capital to launch out into the business world, where the waters can be treacherous and hard to navigate.

One type of loan that an individual might apply for to start their business is a short term business loan. Short term business loans can be due anywhere from ninety days to up to three years and most banks have a rigid pay back schedule for these types of loans. For the most part short term business loans are unsecured which means no collateral is needed, however if an individual chooses to go with a secured loan to start up their business they could possibly get a better interest rate. Short term loans usually have a higher interest rate but usually it is a fixed rate that won’t go up over time. Also since the loan is paid back on a short term basis instead over a long period the borrower winds up paying less interest. That is one advantage of a short term loan versus a long term if a business can swing the payment.

There are a few things for the up and coming entrepreneur to be thinking on if they are considering applying for a short term business loan to start their business. They need to have all of their ducks in a row, in other words they need to be prepared to talk to the loan officer and be ready to answer all the questions that he is going to ask them. They need to be very familiar with the business that they are planning to start; a bank is not going to be eager to lend money for a new business if the applicant doesn’t know the business inside and out. They need to have a good financial plan; they need to have a good idea of cash flow and a good plan on how they are going to pay back the loan. They also need to have a good credit history; if the applicant has a bad credit score they should do what they can to repair it before applying for a loan. The bottom line is that they need to be well prepared before they ever walk through the doors of the bank.

A short term business loan could be very helpful in getting a business started but a person needs to be a savvy business person, because the loan payment is going to come out of the profit that the business makes. Part of the initial profit is going to go back to the bank, so a person has to really do a good job managing the business so that they can pay back the loan and still have some money to live on. The good part about a short term business loan is that it is paid back in a short time which puts a business in the black in a lot sooner.

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