Not all the time businesses experience good times because there are also times where business owners encounter financial challenges such as those fast approaching loan deadlines and being cut short with the expenses they have such as vendor invoices, payroll, and inventory.
One of the solutions that have been used by business owners in Singapore today is the short-term business loans. Applying for a short-term business loan isn’t easy where lenders have their way of checking the risk profile, but even though it is difficult to get a short-term business loan, there are still a lot of business owners who would grab this type of loan.
What are the Dangers of Short-Term Business Loans?
Just like with loans available today, you should also have a thorough study of the short-term business loan and check whether it is practical to apply for it. Here are five dangers of short-term business loans that you may encounter:
● Unfavorable Renewals
There are times when a business owner cannot pay his or her loan right away and this kind of situation some lender from https://www.moneylender.loan/ would offer you a loan renewal. A loan renewal might be a good idea, but it has risks.
Because lenders are in business too, your new repayment plan might not be favorable to you such as having a higher interest rate which is already not practical especially if you have a business to fund as well.
● Reputational Risks
If you are used to applying for a short-term business loan whenever you are short with funds, your investors might see this situation in a bad way and would affect your reputation and your business.
Regularly applying for a short-term business loan shows that your business is not that stable which is not good if you are planning to gain more investors. Aside from the investors, it would also affect getting a long-term loan in the future especially if you can’t follow your repayment terms properly.
● Less-Than-Required Financing
Short-term business loans involve a smaller amount of funds that is why if you need bigger money to fund your financial problem, a short-term business loan is not the right loan for you.
For example, if you want to replenish your inventory items or boost your production, the money that you will get from your short-term business loan will not be enough with all your business plans and needs.
● Relatively Higher Interest Rates
If you are going to compare the interest rates of short-term and long-term loans from both banks and licensed moneylenders, you can see that short-term loans have higher interest rates. You may not see the effect of the high interest rate now but if you are going to compute the expenses of you have spent on the interest a few years later, you can see that you have paid two to three times more in short-term loan interest compared to long-term loans.
● Refinancing Difficulties
Since short-term loans only let you borrow a smaller amount of money, it won’t be enough to refinance your old debts which made this option limit you if you are planning to cross over and look for more competitive deals available.
Do you have any other alternatives?
If you wanted to be practical and avoid getting involved with these short-term loan dangers, you might look for other alternatives such as applying for long-term loans which have lower interest rates and flexible repayment terms.