Taking short term loan requires business analysis

Feb 20, 2016
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A short term loan is one that is payable in less than one year. It is usually taken for a business purpose to finance a temporary working capital need by people having a healthy credit history. It is a good source of money for businessmen who cannot obtain a line of credit from the bank.

If you are going to apply for a loan, there are many companies that offer short term loans in Texas. But you, firstly, need to consider whether you need the long term or short term loan. It all depends on your business needs. Suppose you are in a seasonal business. When the season comes, you take a short term loan, make the inventory and pay the loan off with the sales proceeds. Taking a short term loan will exactly be the best idea in this situation. If you are going for a long term loan, you will still be able to pay the loan within the year but as your installments are extended over 5 years you will end up paying the interest and principal amount in the 5 years. It will just increase your expenses in the form of interest you are paying. Short term loans are best suited when you are just starting and the size of your business is small. You can also borrow a short term loan to take benefit of an arising business opportunity. Sometimes, business needs are such that require a short term loan. Suppose you get an order from your client who cannot pay before 45 days. You have to make payment to your supplier within 30 days. What you can do is to get a short term loan, serve your customer and pay the supplier. When the customer pays back, you can repay the loan you took.

One merit of the short term loans is the real fast process. There are no lengthy paperwork and documentation included and you get the loan faster. Moreover, the loan will exist in your books for a small period of time (ranging from 8-12 months for which you have applied for). But one demerit of the short term loans is the higher APR (annual percentage rate) as compared to the long term loans. Short term loans are usually backed by some kind of collateral like your inventory or other raw material. So, if you fail to pay in time, you may lose your asset.

While searching for short term loans in Texas, take caution that you do not fall prey to any kind of abuser in the market. Loan sharks exist who are not authorized to lend money but grant you a loan despite of having a very bad credit history and they do not need any documentation. But, in return, they charge a very high interest rate. Failing to pay that may cause you serious problems. Similarly, predatory lending is another abuse in which the lenders force unreasonable lending terms on the borrower which they cannot fulfill hence extorted by the lenders.

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