Short-term loans are quite prevalent in America. The setup here is simple—you borrow a specific amount of money and then pay it back after some time. Nuts and Bolts of Short-Term Loan are smaller than term loans where the amounts do not exceed $500,000, and the terms only last a few years. The interest rates start at about 8%, which is still a borrower-friendly rate.
However, to qualify, a lender will look at your credit, making sure it is stable. However, you can use a short term loan for all kinds of business requirement
How much does the Short-Term loan cost?
As you review your loan option, you could narrow your top contenders for best lending option for small business based on how much they will cost. However, it comes down to stacking the comparable elements against one another.
Here are four famous pricing metrics you can use to narrow down your different options:
- Cents on the Dollar: It reveals how much money you’ll pay in interest and fees for every dollar borrowed.
- Average Monthly Payment: It breaks down the cost in monthly terms. However, even if your loan has daily or weekly payments, you can calculate this metric.
- Annual Percentage Rate (APR): Standard metrics show how much the loan will cost you every year.
- Total Cost of Capital (TCC): To get more information, this metric adds all the interest and fees.
How to Apply for a Short-Term Loan
Providing the correct documents in your application is an effective way to prove your reliability to a lender. However, since the document requirements are different from lender to lender, here is a rundown of things you might need to collect:
- Personal background information
- A business plan with proof of cash flow and balance sheets from your business
- Credit Reports
- Signed Personal Statements
- Any franchise agreements, articles of incorporation, commercial leases, or copies of third-party contracts.
On What Basis a Lender Approves Your Short term Loan
Your personal and business credits are a crucial element of any lender’s decision. However, at its core, a credit score is an algorithm that can help predict whether you will or not repay the money you borrow.
Here are five other factors lenders will usually analyze before giving you a short-term loan:
Personal debt ratio
Lenders divide your outstanding debt from seeking your available credit to see if they can trust you with their money.
Lenders would be genuinely interested in how much debt your business currently carries. If it is like other businesses in your industry, you should be in great shape and vice-versa.
Business revenue trends
Lenders would want to evaluate your average revenue growth and see how it compares to your industry’s average.
Personal debt coverage
Lenders will often look at your debt coverage to see if you would personally make the required payments if your business began to struggle.
Business debt coverage
By evaluating your cash flow and debt payments, lenders often decide whether you will make your payments on time.
When taking a short-term loan, create your business plans, connect with GSB Financial to compare different financing costs for your small business firm. We have the best term loans to offer; feel free to contact us.