In today’s highly expensive society, it is common practice for many individuals to use the services of personal loans. However, the financial difficulties of a costly modern world is not exclusive to personal lifestyle, and businesses find themselves in the same situation. Due to economic failures, many companies – large and small – have to cope with financial drawbacks and business loans are being used. While loans can be beneficial, they also have some disadvantages and this article will provide information on both the pros and cons of short term business loans.

The Advantages

1. Speedy Payout

One of the greatest advantages of a short term business loan is the speedy payout. This refers to the ‘quick money’ feature where the funds are available in a short amount of time without having to wait long periods for different amounts of money, or even having the amount paid out over a set period. This aspect of money lending is the earmark of peer to peer lenders, and is the basis for many third-party short term lenders.

2. No Collateral

As an elaboration of the ‘quick fix’ payout feature, a short term business loan is advantageous in that there is no need for collateral when applying for this type of loan. This means that no assets will be required as collateral, allowing for more flexibility in starting the business with the short term loan amount. In addition, there is no concern for any asset being lost if you were to default on the loan removing any property or financial risk.

3. No Background Check

One problem that many individuals have when obtaining a personal or business loan is their credit history; however, unlike larger institutions, peer to peer lenders will offer short term business loans without concern for credit rating. This means that individuals with poor credit rating can apply for loans at the same level as those with positive credit rating.

The Disadvantages

1. High Interest Rates

While short term business loans can be beneficial, the greatest drawback is the high interest rates. When reviewing these rates, it is understandable why credit rating does not matter as all individuals will be required to pay the same amount in a short period of time. It should also be noted that these high interest rates can actually contribute to the loan amount making the payments much higher than the amount initially borrowed.

2. Increased Risk And Debt

Despite loans generally being obtained to eliminate debt and manage finances, a short term business loan can contribute to increased risk for the borrowing individual in specific circumstances. It can be seen that while a short term loan is flexible, poor economic circumstances (such as a recession or loss of stock) can push the business into further debt above the amount already owed on the short term loan. It is possible for the loan to be renewed by some lenders; however, this is not always the case and may cause the company to default.