The main advantage of short-term loans is that you are not bound by repayments over a long period of time. Longer repayment terms may increase the likelihood of hurting a company`s finances due to rising interest rates. Longer repayment times have long-term negative effects on the business. In addition, short-term commercial loans offer: a commercial credit contract is a one-way street; This document protects you (the borrower) and the lender. A legal document that outlines the terms and expectations helps you avoid misunderstandings and guide you through the process of repaying your loan. There are many scenarios in which a commercial credit contract is important: most start-ups are only eligible for a lender`s secured loans. In other words, the start-up should offer some kind of security to ensure credit with the lender. Rarely can a start-up claim a line of credit. Acceleration – A clause in a loan agreement that protects the lender by requiring the borrower to repay the loan immediately (both principal and accrued interest) if certain conditions occur. Private loan contract – For most loans from one individual to another.
For more information, check out our article on the differences between the three most common credit forms and choose what`s right for you. Guaranteed Loan – For people with lower credit scores, usually less than 700. The term “secure” means that the borrower must establish guarantees such as a house or a car if the loan is not repaid. It is therefore guaranteed to the lender to receive an asset from the borrower if it is repaid. Borrowing and equity financing have a legitimate place in financing small businesses. Debt financing, a form of financing that includes credit, can be difficult when a business is cleaning up. Instead, start-ups may have to rely on the savings or credit of the owner of friends or family to obtain the initial capital. After a year or more of operation, the business needs short-term credit or other forms of short-term financing. Short-term loans are generally required for small businesses for working capital requirements. In addition to working capital loans, small businesses have other types of short-term loans. Depending on the loan chosen, a legal contract must be developed specifying the terms of the loan agreement, including: the most obvious feature or short-term loan is the speed at which the loan can be repaid.
Because you borrow in the short term, your repayment period is usually between 3 months and 1 to 2 years. Other features of short-term business loans are: a start-up can get a short-term loan. Start-ups must provide the lender with complete documents, such as. B cash flow billing and revenue forecasts for the next 3-5 years.