A shorter term is chiefly useful to your business if you want to pay back the loan more quickly, which means you have to have the cash flow or cash in reserve to make that happen. If you have neither, it makes sense to push the payment terms out over the course of a year-and-a-half or so.
For the right business at the right time, a short term can make an enormous amount of sense. Let’s go over the reasons why in a little more detail.
Why Go Short?
- Less interest. This is the most major drawback associated with drawing out the term, as you’ll eventually wind up paying more interest. It’s not a game-changer, obviously, but if you can afford to pay it back more quickly you’ll wind up paying less in the long run.
- Getting it off the books. No one’s overly fond of carrying around debts any longer than they have to, and a working capital loan paid back in several months is better than over a year. It’s good for your peace of mind.
- It gives you the flexibility to take on other loans if you need them. It’s a reluctant and desperate small business owner who takes on multiple loans at once, given the very real possibility that paying them all back will overwhelm your reserves and create further cash flow problems. Concentrating on one or two loans at a time will provide better results.
So those are the basic advantages we’ve identified. Do you prefer a shorter or a longer payback term?
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*Working capital not available in the following states: AK, DE, ND, VT