While looking for some financing options for your business, you may have come across the terms small business loans texas. Banks and conventional lenders offer these loans, but they are not alike. Both loans have different terms and conditions, qualifying criteria, and duration.
You have more time to repay long-term business loans than short-term business loans. As the name suggests, short-term loans are for a few months or a year. Long-term loans, on the other hand, last up to ten to fifteen years.
What are short-term small business loans texas?
These loans are a type of personal loan meant to be paid within six to twelve months. Since the loan amount is not big, the payout duration of a short-term loan is less. Your credit score is an important component while applying for a short-term loan. Lenders assess your credit score before offering you money to check the possibilities of risk.
When traditional banks don’t approve your loan request due to a low credit score, lenders set high-interest rates. If you manage to repay the loan on time, you can probably improve your credit score. How?
Your lender reports your payment activities to the credit bureaus regularly, helping improve your credit score.
However, missing your payment or not paying back can seriously impact your credit score and will reflect on your credit report. A decrease in credit points can severely affect your options of getting loans again and negatively affect your life goals.
How should you utilize a short-term business loan, and what options should you consider while applying?
You can get a short-term loan for different goals. It can be used for personal as well as business purposes. These are a few reasons-
- Minor home renovations
- Vehicle purchase for any business or personal use
- Asset or equipment purchase for business
- To manage operational costs
- Medical emergency
- To finance outstanding invoices
There are benefits to borrowing a short-term loan as well as drawbacks. So consider the pros and cons while applying for a microloan.
- Flexibility- Small business loans in texas do not have a defined purpose. You can take them for personal as well as business use.
- Less rate of interest on higher amounts- If you have a good credit score, lenders can offer you a bigger loan. So your borrowing limit increases.
- Collateral is not necessary- You don’t need to put up any asset or collateral against the short-term, unsecured loan. These unsecured loans are quite easy to apply for.
- Easy to manage- With short-term loans, it is easy to divide the payments to get out of debt and manage expenses.
- The rate of interest can be higher- small business loans in texas have higher interest rates compared to the other loans offered by traditional lenders or banks. However, these secured loans with high-interest rates can put your collateral at risk.
- Late payment penalties can be high- Sometimes microloan lenders charge an additional fee, which increases the total amount. These charges can be applied to late payments, missed payments, or early payments.
- You may not be able to pay on time- Some lenders impose heavy penalties for early payments. So you can’t pay the entire amount before the stated time. These policies vary according to the different short-term lenders. It is necessary to check the terms and conditions before taking up a loan.
The lenders are required to follow all federal and state loan requirements and obtain proper licensing or certification to provide short-term loans. Regardless of the duration, most loans give borrowers the option to either pay the loan amount back in full or in installments.
What are long-term business loans?
- This is the category of a loan that is paid off in easy monthly installments, over an extended period. The duration can be anywhere between five to fifteen years. Vehicle loans, housing loans, and other personal loans are some examples of small business loans in texas.
- These loans are the most common form of credit in the financial industry. With more awareness of online and easy banking, long-term loans have become common. These loans generally offer a big amount and are meant to be paid over a reasonable period.
- Terms and conditions of long-term loans can vary depending upon the reason for loan application. Long-term loans almost always offer pre-payment options to borrowers. This helps people pay off their loans earlier than the given time.
How should you utilize a long-term business loan, and what options should you consider while applying?
Unlike a short-term loan, a loan-term loan can be applied for different things. It can be used for long-term investment, real estate, or business setups. These are a few reasons-
- To purchase real estate or a house
- Debt unification
- To manage unexpected high-cost medical expenses
- To invest in a business plan
- To acquire a business
You can receive a long-term loan with a good credit score. However, consider the pros and cons before applying for one.
- You have the liberty to apply for small business loans in texas. If you don’t want to put up any collateral, you can opt for long-term unsecured loans.
- You can take a big loan for the long term to pay it back easily.
- A good credit score is important for both long-term and short-term loans. You can get a low-interest rate with a good credit score.
- Since there’s flexibility, you can repay your loans early if you want to.
- Mostly, long-term loans are obtained against collateral, so, defaulting on secured loans could lead to the repossession of your assets.
- You’re under debt obligation for a long time.
- People with low credit scores may not get competitive rates of interest.
- You may end up paying a larger amount since you accrue interest for the whole term.
Different lenders have different interest rates for loans, but most of them set lower interest rates for long-term business loans. Although the interest rate is less, don’t let that fool you into thinking they cost less. These loans typically cost more than short-term business loans because you pay the interest for the whole duration.
The Final Note
Hopefully, all the points help you differentiate between short-term and long-term business loans now.
- If you’re a business owner, consider the loan type that fits you best and your expansion goals. Obtaining a long-term business loan can be beneficial for you to expand your business if you get flexible repayment options.
- A short-term business loan can be your best option if you’re looking for financing to purchase business equipment.
- It can be difficult to find the right place for help. But a trusted money-borrowing app like Lendee helps borrowers get money quickly from its pool of verified lenders.
- Lendee allows borrowers to get a small loan of as low as $100 and up to $2000 for any purpose. Lendee assures competitive rates and flexible payback options to borrowers.
- One of the biggest perks of getting a microloan on Lendee is that it helps borrowers improve their credit scores. Lendee reports borrowers’ payment activities to the credit bureaus like traditional lenders. Besides, paying off a small loan is much easier than a large loan.