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Know how the Short Term Business Loans Differ from their Counterparts

The views that people have towards loans is changing today. Earlier people use to think of them as just a means to fulfill financial needs. Moreover, they were treated as burden over the business. But as the time and business policies are changing, the trend of loans has taken a completely different place in a business. They are now treated as one of the most important parts of a business. Loans can take a business from a startup to a success provided they are used in the right manner. Generally, loans are divided into two categories depending on their repayment time. Where short term business loans are taken for a period of three months to two years, the long term loans can continue for decades.

Know how the Short term business loans differ from their counterparts: eAskme
Know how the Short term business loans differ from their counterparts: eAskme
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Both the types of loans are important for a business but not all the requirements fit both of them. This means that there are different uses and conditions when these loans are taken up by the company. A businessman has to make a lot of study before going to raise a loan. The long and short term loans are used in different situations and differ from each other in many ways.

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What makes short term business loans different from long term loans?

When it comes to the two different categories of loans, they are generally differentiated on the basis of repayment time. However, there are a lot more factors that make these two funding options differ from each other. For a business both these types of loans are important. The long term loans are used to meet major and capital expenses of the business, the short term funding help in fulfilling regular but very crucial cash needs of the business. Here are some of the bases on which these two categories of loans are different from each other:

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Borrowing amounts- 

The loans that are taken for the shorter period have the low amount and are repaid in less time. On the other hand, the long term loans are higher in amount, and their repayment lasts for years.

Interest rates-  

When you repay the loan you have to give some interest over it along with the principal amount. The interest rate on the short term loans is generally high as compared to the long term loans. This is because the borrowing cost or the inters rate in short term loans is calculated for a shorter period of time and have to be repaid monthly whereas the long term loans are calculated over the number of repayment years, and therefore it seems more favorable.

The credit rating- 

To raise a long term loan it is very important to have a good credit rating. Since it involves a big amount, the credit rating has to be high. When it comes to short term loans, the credit rating does not hold much importance. There are few loans that can be given without credit check also.

There are a lot more formalities in long term loans as compared to the short term business loans. A businessman must first access the reasons to raise the loan and then determine which funding type will suit them the best.