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A short-term loan is a particular type of loan that you can apply for to give you temporary help with your finances for your business or personal needs. Since it’s a credit, you have to pay the principal amount of the loan plus the interest on or before the agreed due date.
If you’re a new small business owner and you are not yet eligible for a credit line from any banking institution, getting a short-term loan is a good option.
Moreover, the good thing about this type of loan is that it doesn’t only offer financial assistance to business owners, but it also helps those who suffer from various struggles with a sudden cash-flow issue.
Hence, if you’re one of them, check these six types of short-term loans below and see which one suits your needs and preferences.
Merchant Cash Advances
This type of loan is a cash advance that a borrower receives from the lender. It’s quite common for small business owners across the country. If you apply for merchant cash advances, you’ll receive your borrowed funds upfront and the process of your payment is by allowing your lender to access your credit facility.
So, every time you get a sale from your business, your merchant cash advance provider will get a particular percentage of it until your loan gets paid in full.
Payday Loans
Payday loans are another short-term loan that you can apply for easily and get your funds right away. Most people use online payday loans for emergency purposes, like unexpected expenses or hospital bills.
Once you receive your borrowed funds, you have to pay the full amount plus the interest on your next payday. Note that it’s your lender who will take out the money from your bank account, so you have to give him or her your access to it.
Keep in mind that payday loans may have higher interest rates. But if you badly need the money right now, it’ll be one of the best options that will give you immense and immediate help with your finances. You can visit the lending companies near your area or you can surf the internet and look for various websites that offer this loan.
Invoice Financing
Invoice financing is a type of short-term loan when the businesses borrow funds from the lenders against the amount that their customers haven’t paid yet. So instead of these business owners waiting for their customers to pay their obligations, invoice financing will help them reinvest in their production and operation in the market and even pay their suppliers and employees.
Then, when they repay the borrowed funds to the lender, it’ll include a particular percentage of it as the interest.
Bank Overdraft
This short-term loan is one of the popular types of credit facility. If you have a credit card and it has an insufficient balance to buy a particular item in the shopping mall that you want, your banking institution will provide the remaining amount for you to complete the purchase. Then, you have to pay the bank for that amount, including the interest.
Lines of Credit
This type of short-term loan is a business line of credit that you have to pay within six months to one year. The good thing about this line of credit is that you can borrow a particular amount from the pool of funds if you need financial assistance in the future. As long as you’ve paid the funds you’ve used in full, including the interest, you can then again get the full amount of the credit line.
Besides that, a lot of people want to apply for lines of credit whenever they encounter any unexpected expenses or venture into a new business. Hence, this type of short-term loan is a perfect option for small business owners who have unstable cash flow and don’t have enough choices to offer for the collateral when applying for a loan.
Installment Loans
One of the short-term loans that you can apply for if you need immediate financial assistance is the installment loan. As its name suggests, you have to pay the borrowed funds on a monthly installment basis over a particular time period.
Unlike getting a credit card that the interest rate may change over time, the installment loans have fixed interest fees within the agreed term period of the repayment.
Takeaway – Types of Short-Term Loans
Applying for a short-term loan can significantly help you get the money you need in the shortest time possible. It’ll also help you survive until the next salary release of your company and even cover whatever unexpected expenses you have right now.
Because of that, you have to be aware of the different types of short-term loans so that you will know which one works best for you whenever you need it in the future. You may wish that it won’t, but it is still better if you’re ready for what may happen tomorrow.
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