According to authors Golin and Delhaise, a loan is any legal binding contract between a lender and a borrower. The borrower loans money from the lender for a certain period. The amount borrowed must be paid in full and with interest upon the agreed date or as indicated in the lending contract.
From a historical point of view, “short-term loans” refer to the unending liability of the Italian cities and the perpetual annuities released by the European towns. According to the book “History of Interest Rates” by Sidney Homer, short-term loans are prolonged for many years. This includes bank deposits, pawnshop transactions, collateral loans and other bills of exchange.
In today’s modern world, short-term loans such as those found on Toppfinans (http://www.toppfinans.com) are classified as such, for as long as it is paid within one to three years. Normally, those who plan on putting up a business engage in short-term business loan. Business owners avail of such loans to fill the gap in their cash flow. Some loans may or may not need collateral; other loans may result to higher interest rates. Nevertheless, short-term loans are very useful for business owners to keep their business ongoing.
What is the difference between short-term and long-term loans?
Short term, based on banking concepts, is defined as the term in which loanable amount is payable within one year or less. On the other hand, long term means paying the debt in an extended period of time.
Short term loans are considered secured while long-term loans are unsecured. A secured loan means paying lower interest rates while the latter would require you to surrender some assets, if in case you cannot pay the agreed amount indicated in the contract. This further results to higher interest rates and is considered unsecured.
Nevertheless, here are some advantages of availing short-term loans:
- Source of emergency fund for small businesses.
Business owners can avail of short-term loans as a source of emergency cash fund. A business establishment is not a guarantee of consistent cash flow. There are good and bad days when running a business. Short-term loans can provide for the immediate needs of the business such as new equipments, utility bills and salary of staff.
- Short-term loans can serve as a capital for operations.
Short-term loans do not only serve the business owners during emergency cases but for daily operations as well. It takes a while before a new business starts to pick up. When business operations are at risk, short-term loans are a good source of buying supplies until the capital has been regained.
- Short-term loans can cover for maintenance cost.
There are always unforeseen events in businesses. Short-term loans can fill-in for maintenance expenses if in case the cash register malfunctions or if equipments and physical facilities in the business break down.
- Short-term loans are usually processed faster.
If business owners need fast cash, it is best to avail of short-term loans. Lenders are likely to demand more supporting documents for long-term loans. For faster processing and lesser requirements, short-term loan is the way to do it.
It is important to assess the urgency of the need for cash. Business owners must be aware of the pros and cons before availing of short-term loans. Short-term loans can actually be the solution to your financial need but, it is best to seek financial advice from the experts.