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small business, business loan

Short term business loans vs. long term business loans - which is best for your business?

Capitalise Oct 24, 2023

When it comes to securing financing for your business, you might be wondering if a short term, or long term option is best for you. 

Both short term business loans and long term business loans can offer advantages that cater to different business needs. We explore the key differences and provide insights to help you make an informed decision for your business. 

Understanding short term business loans

  • Loan duration - short term business loans typically have a repayment  period of up to 18 months, making them ideal for businesses that require immediate cash flow solutions for short-term needs. These loans are designed to be repaid quickly, allowing businesses to access funds rapidly.
  • Interest rates - short term loans generally come with higher interest rates compared to long term loans. However, it’s worth bearing in mind that the overall interest costs may be lower due to the shorter repayment period. It's important to calculate the total cost of borrowing to determine if this option is cost-effective for your business. You can use our business loan calculator to see what your total cost of borrowing could be. 
  • Uses - short term business loans are often used for purposes such as covering unexpected expenses, purchasing inventory, managing seasonal fluctuations, or addressing immediate cash flow challenges. They are a quick and flexible solution to bridge financial gaps. 

Understanding long term business loans

  • Loan duration - long term business loans have repayment periods that extend beyond 18 months, up to several years. These loans are tailored for more substantial investments and projects that require large amounts of capital.
  • Interest rates - long term loans generally come with lower interest rates compared to short term loans. The extended repayment period allows for more manageable monthly instalments, making them suitable for businesses with predictable cash flow. 
  • Uses - long term business loans are commonly used for large-scale investments like purchasing property, acquiring assets like heavy machinery, or launching new product lines. They provide stability and predictability in managing long-term financial commitments.

How to choose the right option for your business


1. Assess your needs

The choice between short term and long term business loans should align with your specific business needs. Consider the purpose of the loan, the urgency of funds, and your repayment capacity. Short term loans are great for immediate needs, while long term loans are better suited for significant investments.

2. Forecast your business’ cash flow 

Examine your business's financial health and cash flow forecasts. If your business can comfortably manage the monthly repayments associated with a long term loan, it may be the right choice. However, if you need funds quickly and can afford slightly higher interest rates, a short term loan might be more suitable.

3. Check your eligibility

Your business’ credit score, how long you have been trading and your overall financial health could affect whether you’re eligible for a short term or long term business loan. Use our business loan calculator to check your eligibility for funding and see which options might be available for your business. 

4. Plan for growth

You should also consider your long-term business goals. If you anticipate rapid growth or expansion in the near future, a long term loan can provide the stability and resources needed to support your business's progression and growth. 

The choice between short term and long term business loans isn't one-size-fits-all. It depends on your unique circumstances, financial health, and growth aspirations. By understanding the key differences between these two options, you can make an informed decision that propels your business towards success. 

If you’re looking for a business loan, you can find funding with Capitalise. We’ll provide you with dedicated support from a funding specialist who can help you find the right option for your business.

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