What Business Loan Option is Right For You?Short Term Loans, Medium Term Loans orLines of Credit

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When it comes to financing your business, you have many options. With so many types of loans, how do you know you are making the right decision? We’ve narrowed it down for you to help you prepare better when seeking financing for your business. Here are three of the most popular loan types find the one that best fits your business needs.

Short Term Loans

A short term loan is unsecured financing that is expected to be repaid within a shorter period usually between 6 to 18 months. Short term loans have simple approval processes, do not require collateral and can be obtained quickly because they only ask for minimal documentation.  A small business should consider a shorter term financing when they need fast cash and can’t wait weeks for their funding. The best use of a short term loan is either for an unexpected opportunity or emergency or for the need of smoothing out a business’s cash flow.


Who Benefits from Short Term Loans?


Businesses Who Need It Fast

Picture this, your business is doing great, your sales are up and you’re trucking away just fine, and then boom! an unexpected growth opportunity falls into your lap. You want to take advantage, right? But you know that you don’t have the right amount of cash flow to take on the opportunity. You need cash and you need it fast. In this case, a short term loan is your best option and in most cases, lenders can fund you the next business day after applying. Sure, it might be more expensive than a medium term loan but you don’t have time to waste and you know that this opportunity will increase your business’s revenue.

The same goes for if an unfortunate emergency happens and you need funds to keep your business moving. For example, one of our customers needed money for an unexpected damage caused by weather and didn’t have time to wait for the insurance company. So he took a short term loan from us to help him get back on track until he received the funding from the insurance company. A short term loan is helpful in getting you the money you need quickly so that your business can keep running smoothly.

Businesses Who Want To Smooth Out Their Cash Flow

In a survey we conducted of our recent customers, 80% claim cash flow is their biggest concern when running their business. As a business owner, your revenue fluctuates each month so it’s hard to keep your cash flow on point.  For instance, if you are a seasonal business or you know that some seasons are better than others, a short term loan of up to $500,000 will allow you to stay rest assured that your cash flow will remain smooth throughout the year. 

Businesses Who Don’t Want Long Term Debt

No one likes debt, that’s a no brainer. But sometimes to grow your business or have the right amount of cash flow you need to opt for financing. With short term financing, you can rest assured that you will not have debt hanging over your business for too long. With shorter daily repayments, your business repays the loan quicker, accrues less interest and pays less on the loan than you would with a medium or long term loan. Some lenders like BriteCap offer you a discount on your loan if paid off even sooner than the agreed upon term.

Businesses Who Want to Improve Their Credit Quickly

Short term loans are a quick and easy way of giving your business credit a needed boost. For example, if you want to obtain a large amount of funds, but your poor or fair credit won’t allow you to get the lowest rate, you could start by obtaining a short term loan at a smaller amount, and then make sure you can make the repayment amounts in good standard. Receiving and successfully paying off any type of loan will improve your credit score and allow you to qualify for that larger amount of funds at a much lower rate.

Medium Term Loans

A medium term loan is a longer-term loan expected to be repaid within one to five years and offers larger loan amounts. These loans have fixed interest rates that are lower than other types of financing. To obtain this type of loan you need to show profitability and a high FICO® score is required. The application is also longer, more time-consuming and requires comprehensive documentation.


Who Benefits from Medium Term Loans?


Businesses Who Can Wait

If you have a plan for your business that requires you to seek financing to meet your goals but you’re not in a rush to get it, then medium term financing will work for you. You may have an opportunity to buy out a competitor or are looking to remodel or expand. In this case, a medium term loan will enable you to get the capital you need for your growth plan and can benefit from getting a lower rate.

Businesses Who Need Large Amounts Of Funds

A medium term loan can provide you up to $500,000 in capital and allow you a longer time to repay it. It’s obviously easier to pay-off a smaller amount, so if you need a large lump sum but need more time to pay for it, then medium term financing is your answer.

Businesses Who Want Lower Monthly Payments

With medium term loans, you also benefit from lower rates and smaller monthly repayment amounts. Although you should keep in mind, since you are paying on a longer term you may end up accruing more in interest and ultimately pay more for the loan, in comparison to a shorter-term loan. But if you have good credit you could lock in a great fixed rate and not have to worry accruing too much interest. It all depends on what makes sense to your business and making those monthly payments without burdening your business and goals.

Lines of Credit

A line of credit, also known as revolving credit, allows small business owners to tap into their loan only when the need arises. This works a bit more like a credit card where you have a set credit limit and only pay on what you use. However, with a line of credit, you make a draw request from the lender and then make regular payments on the balance of your loan and only pay interest on what you draw. Lines of credit come with higher interest rates and shorter terms. Repayment frequency can vary from weekly to monthly. The best use of a line of credit is to pay suppliers or for regular expenses, to take on new opportunities, or to deal with cash flow shortfalls.


Who Benefits from Lines of Credit


Businesses Who Want Flexibility

A line of credit allows you to access money when you need it rather than having to take on a huge amount of debt all at once like a traditional business loan. Its’ flexibility makes a business line of credit a useful tool for managing cash flow, where you take out as much as you need and then pay it off once income starts to come back into the business. Although you should be careful and make sure to manage how much you have in your line so that you don’t reach the limit because once you do it’s harder to increase it quickly.

They also allow for more flexible repayment options because you have the option of paying on the loan when you want to. Where with traditional loans you must make daily or monthly fixed payments. Although if you want to keep a revolving line you should pay down the loan frequently.

Businesses Who Need Fluctuating Cash

With a line of credit, you are approved for a certain credit limit and can take out different amounts of funds as needed. Unlike traditional loans, revolving credit allows you to change the amount you borrow as you see fit, up to your loan limit.

Businesses Who Want More Control Over Their Finance

With a line of credit, you are in control of how much you borrow. Many business owners like to have the freedom to continually make growth-driven decisions at any given time. A line of credit puts the control in your hands and the funds can be accessed almost instantly.

When choosing the right financing for your business it is important for you to analyze your business needs and choose the financing based on that. Work with a financing company that is an expert on small business loans, such as BriteCap.  We will walk you through your options and answer all your questions so you make the right decision for your growing business and reap the benefits.

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