Long-Term vs. Short-Term Business Financing: Which is Right for Your Business?

Business Funding - 4 Min Read

This blog was last updated on February 12, 2021.

Looking for financing for your business’ next growth opportunity, as a cash bridge, or for your new location’s lease? Whatever the reason, you’re probably faced with financing options from multiple directions and wondering how to choose the right one for your business.

One of the biggest questions that business owners have about financing is whether long-term or short-term financing is a better option for their business. As the name suggests, these term loans largely differ in the overall lifespan, but there are other factors to consider as well. Each type of financing has its place, but in a nutshell, here are the differences between the two financing types:

Is Long-Term Financing Right for My Business?

Long-term financing provides business owners with a large amount of capital for extensive, multi-year use. This is the go-to type of financing for large, established businesses that have a long-documented financial history, plenty of collateral, and a purpose for the proposed working capital. It often comes from large, traditional banks. Let’s take a look at the pros and cons:

Pros of Long-Term Financing

The pros of long-term financing include its capacity for high-dollar capital, ideal for businesses that need large amounts of cash for massive marketing campaigns, extensive product development, international expansion, and other huge costs of operating a large business. A longer term repayment allows businesses to keep payments manageable on larger loans.

Cons of Long-Term Financing

While long-term financing is a great way to obtain high-dollar loans for large businesses, they are out of reach for many types of businesses. Plus, some may find them undesirable because of the extended repayment obligation. Some of the cons include:

  • Stringent financial requirements. Long-term financing might not be an option for businesses that don’t have massive cash flow already. In short, if you need a loan, you might not be able to get one.
  • Limited choice. When you seek out long-term financing, it’s generally with a large, traditional bank, and you receive funding on their terms with limited choice, flexibility, or collaboration to find the right solution for you.
  • Collateral. Banks and credit unions usually require assigned collateral to secure the loan.  
  • Extended repayment obligation. Lengthy paybacks can result in long term financial stress on your business.

Although long-term financing might be a good fit for your business, many other business owners also consider short-term financing for its alternative advantages.

Is Short-Term Financing Right for My Business?

Short-term financing is a solution that’s growing in popularity for small and medium-sized businesses that need working capital quickly. Short term business financing comes from alternative lenders who specialize in helping small businesses with obtaining working capital quickly. The pros and cons include:

Pros of Short-Term Financing

Small business owners tend to gravitate toward short-term financing because of the speed and convenience, and because it’s easier to find short-term lenders who cater to business owners’ needs. Some pros include:

  • Short application and funding process. Short-term financing applications often require less supporting documentation, which means a faster application process. For instance, the Mulligan Funding application process is seamless, and you can gain access to funding as soon as the business day after approval*.
  • Pay less in fees over time. While the fees associated with a long-term business loan may be smaller at first glance, compounded interest and fees over a period of years add up. With a short-term loan, the goal is to have it repaid quickly, so you aren’t spending more than you need to in fees.
  • Higher approval rates. Alternative lenders typically have high approval rates for small- to medium-sized businesses compared to large, traditional banks. They are also more flexible with credit scores.
  • No collateral required. No collateral is assigned to secure the loan

Small business owners need solutions that work for them, and short-term financing usually falls into that category. The short approval process and higher approval rates mean that small businesses spend less time securing the loan, and more time actually putting those funds to use improving the business. Because the repayment period is brief, you’re not compounding interest and fees over a period of years, ultimately saving you money in the long run, too.

Cons of Short-Term Financing

A primary con of short-term financing is that you may not be able to secure unusually large amounts of capital. For loans in the range of hundreds of thousands or millions, a traditional bank could be the only recourse.  Short term financing has its limitations. There is usually a cap on the loan amount, subject to your business’ monthly revenue. And the rates are usually slightly higher than a bank because their qualification criteria isn’t as stringent, no collateral is required, and the increased speed and ease of the process.

As you can see, both long-term and short-term financing have their specific uses in the business world. But overall, short-term financing provides speed, flexibility, and convenience. And these factors are critical for growing small businesses. There’s no such thing as one financing solution that works for every business, but short-term loans are the go-to solution for most small- to medium-sized businesses.

Talk to a Financing Professional Today

If short-term financing sounds like a good fit for your business needs, contact a funding advisor at Mulligan Funding today. You’ll get a dedicated advisor assigned to your account to help you figure out the financing solution needed for your unique situation. Regardless of whether you’re planning an expansion or need to replace worn-out equipment, a business loan can help1. A business funding partnership with Mulligan Funding could be just the relationship you need to take your business to the next level.

It’s time to start securing short-term financing for your business. Call Mulligan Funding at 855-326-3564 to discuss your financing options today!

The information shared is intended to be used for informational purposes only and you should independently research and verify.

Note: Prior to January 23, 2020, Mulligan Funding operated solely as a direct lender, originating all of its own loans and Merchant Cash Advance contracts. From that date onwards, the majority of funding offered by Mulligan Funding will be by Loans originated by FinWise Bank, a Utah-chartered Bank, pursuant to a Loan Program conducted jointly by Mulligan Funding and FinWise Bank.