The Case for Small Short Term Loans

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Small businesses come in a variety of shapes and sizes. More than half are home based, while many others operate out of offices and factories across the country. Some have only one employee while others have 500. They provide an incredible range of goods and services, as well as 65% of all the jobs created in the U.S. since 1965. They represent the backbone of the American economy, yet so many are suffering. In fact, only about a quarter manage to stay open for 15 years or more. Though their reasons for closing are as diverse as their reasons for opening, many can point to finances as a major factor.

In 2012, small businesses in the U.S. sought loans to help them with many issues, though the three most common were cash flow, reserve funds, and inventory purchase. Small business loans have always been important to America’s business community, especially when companies find themselves in tight financial spots. Unfortunately, one of the business community’s favorite solutions is in jeopardy. Small short term loans have long been important for companies with immediate cash flow needs or unexpected emergency payments. However, in the last week, the news has been riddled with stories about banks discontinuing the availability of small business short term loans as a result of pressure from federal regulators.

Though banks and alternative lenders maintain that small short term loans are important for customers who need emergency lines of credit but who can’t qualify for traditional loans, some are calling them “predatory,” alleging that their associated fees are too steep. Here, we’ve compiled a short list of the benefits of small short term loans for businesses, especially compared to credit card use.

  • Repayment terms- Short term loans usually have specific repayment terms based on type, and most lenders will provide up to a year for payment A short term loan can get you out of debt quicker than a credit card that has an open ended repayment date.
  • Interest rates- Short-term loans usually have lower interest rates than credit cards, with the exception of payday loans, which sometimes charge as much as 1,000%. Currently the average interest rate on cards with a fixed rate is 13.81 percent. Although the interest rates on small short term loans depends on their lengths, if you have good credit, your interest rate will be lower than most credit-card rates.

Though short term loans may not be for everyone, eliminating them entirely may prove unhelpful to small businesses at the very least. Their future may be uncertain, but the roles they’ve played in keeping small businesses afloat is certainly not. See this link for more references: