May 26, 2023
min read
Written by: 
Nikolaus Hilgenfeldt

Short-Term Business Loans vs Long-Term Business Loans - Which is Better?

As a business owner, there are countless scenarios where securing additional funding becomes a necessity. 

Whether you're facing a short-term cash shortage or gearing up to expand your product listing during peak seasons, the reasons to seek financial assistance are as diverse as the businesses themselves.

But here's the thing: while the amount of funding you need is undeniably crucial, it's just one piece of the puzzle.

So, enter the world of business loans, where the choice between short-term vs long-term financing can make all the difference.

By understanding their nuances, you'll gain the knowledge to secure a loan that perfectly aligns with your unique needs and aspirations.

Let's dive in and discover the perfect loan type that will fuel your growth and set you on the path to success.

What Is a Short-Term Business Loan?

These loans are designed to fulfill the funding needs of small businesses right away.

Whether your business is grappling with unexpected surges in demand or seeking to capitalize on a time-sensitive new business opportunity, a short-term loan provides the perfect solution, offering swift and adaptable funding.

Short-term loans are typically available from alternative lenders who prioritize flexibility, unlike traditional banks, which may have strict loan requirements.

The eligibility criteria are often less restrictive, making accessing the funds you need easier without shouldering long-term debt burdens.

💡 Short-term financing is often used to address short-term demands such as material purchases, cover daily expenses, inventories, and fluctuations in cash flows.


What Is a Long-Term Business Loan?

These loans are specifically designed to support long-term objectives, such as business acquisitions or future expansions that unfold over several years. 

However, it's important to note that long-term financing comes with additional considerations.

For example, traditional lenders often impose other requirements, such as the need for collateral or limitations on the amount of future funding a business can undertake. 

These measures reduce risks and protect the interests of both those who lend and those who borrow.

Despite stricter requirements, this financing option offers the stability and resources to fuel significant business growth and secure a prosperous future.

💡 Long-term financing is often used to cover the cost of equipment, cars, facilities, and other assets with a long useful life.


What’s the Difference Between Short-Term Vs Long-Term Business Loans

To grasp the disparities between long-term vs short-term financing, let’s break them down in detail:

1. Loan Amount

The critical differentiation between long-term and short-term funding lies in the borrowed sum. Generally, the more significant the loan amount, the longer it takes to repay.

On the other hand, short-term business loans involve smaller loan amounts, making repayments more manageable and reducing the overall debt incurred.

2. Collateral

Long-term business loans, being larger in size and duration, often require collateral or security.

Lenders seek assurance to recoup their losses if a borrower defaults, typically through the sale of collateral.

In contrast, short-term loans are generally unsecured and do not necessitate collateral. However, you may need to provide some forms of indirect collateral that are not directly linked to the asset provided as collateral for a loan.

3. Interest Rates

Short-term business loans commonly carry higher interest rates to compensate for shorter repayment periods. 

Lenders charge higher rates for short-term loans without collateral as the risk of default increases.

This interest rate adjustment helps mitigate potential losses.

4. Processing Time

Instant liquidity is a primary reason borrowers opt for short-term business loans, specifically with alternative lenders. 

Consequently, the approval process for these loans is quick and straightforward, often involving minimal paperwork.

On the other hand, long-term business loans are only approved after meeting all eligibility requirements and thoroughly assessing the borrower's creditworthiness.

In addition, secured long-term loans involve evaluating the market value of assets.

As a result, short-term loans are often approved within 24 hours, a feat that is considerably more challenging to achieve with long-term loans.

5. Loan Duration

Short-term cash loans typically have a repayment period ranging from 1-2 years, while long-term cash loans span 3-10 years.

The extended repayment term of long-term loans allows businesses to distribute mortgage payments over a longer period, promoting financial stability.


How to Choose Between Short-Term Vs Long-Term Financing

Determining the best loan solution for your business requires a strategic approach that aligns with how you plan to use the funds.

For example, if you have a specific and short-term objective in mind, a short-term cash loan may be the ideal solution.

Conversely, if your goals are more ambitious and long-term, long-term financing will better support your aspirations.

Additionally, it's crucial to consider collateral and whether you have assets that can serve as security for your loan.

When deciding between short-term and long-term financing, several factors come into play:

  • The desired loan amount.
  • The urgency with which you require the funds. 
  • The choice of lender.
  • If there is a need for collateral.
  • The overall financial condition of the business.

Let’s go over these factors further:

1. Cash Flow Requirements

Timing is crucial when you need to select the repayment duration for your business loan.

While meeting the payment deadline is essential, ensuring it doesn't strain your business's financial position is equally important.

Late payments or insufficient cash flow can jeopardize other expenses, result in penalties, or harm your credit score.

Therefore, accurately forecast your cash flow needs and consider any upcoming costs that may impact your ability to repay the loan.

2. Your Current and Future Financial Situation

Suppose you're exploring multiple possibilities or need time to evaluate the best action.

In that case, a short-term loan can provide flexibility.

However, if your business is in its early stages and its short-term cash flow is uncertain, it may be wise to allow for more time and opt for a long-term business loan.

This way, you avoid long-term debt if your business faces challenges or fails as anticipated.

3. Risk Tolerance Assessment

When comparing short-term and long-term finance, it's essential to recognize that risks are context-dependent and not universally determined.

While a long-term business loan generally carries more risk due to the extended repayment period, other variables come into play.

For instance, short-term loans often require higher installments, potentially leading to financial strain.

Assess your ability to handle increased payments and determine which loan option aligns with your risk tolerance.

Additionally, it's crucial to evaluate the likelihood of loan approval.

You may face challenges getting long-term funding if you have a newer business with limited financial history.

In that case, obtaining short-term financing is more viable in such scenarios.

Pros and Cons of Long-Term Vs Short-Term Business Loans

When considering long-term and short-term business loans, weighing each option's advantages and disadvantages is important.

Pros of Short-Term Business Loans

✅ Offers flexibility and quick turnaround time, providing immediate access to funds.

✅ Alternative short-term lenders specialize in understanding the unique needs of small businesses, working closely with business owners to meet their requirements.

✅ Loan decisions from alternative lenders consider factors beyond just credit score, making funding more accessible for small business owners.

Cons of Short-Term Business Loans

❌ It may not be suitable for businesses seeking more significant funding amounts.

❌ Businesses planning acquisitions or requiring significant investments in equipment or staffing may find short-term loans insufficient for their needs.

Pros of Long-Term Business Loans

✅ Ideal for established small businesses with significant and long-term funding requirements.

✅ Business owners with excellent credit may qualify for favorable loan terms.

✅ Making a substantial down payment can help reduce overall loan costs.

Cons of Long-Term Business Loans

❌ A rigorous approval process and collateral requirements can pose challenges, particularly for new or smaller businesses.

❌ While interest rates are often lower, the extended repayment period results in a higher overall interest payment.

Where to Get Short-Term and Long-Term Business Loans?

Asset-Based Financing For Ecommerce Sellers

Online lenders have emerged as a viable option for small businesses, as they possess a deeper understanding of the unique challenges and fluctuations in cash flow that companies may face.

In addition, they are often more open to working with newer businesses or those encountering temporary cash flow crises.

What sets asset-based lending apart from traditional loans, lines of credit, and credit cards is its impact, or lack thereof, on your business credit history. 

Unlike the conventional approach, online lenders do not rely on traditional credit rating bureaus or report to them.

It means that you solely establish a relationship with the lender, and the way you use asset-based financing does not have any implications for your business credit history.

Myos Financing Scenario

HomeHarmony applied for stock finance from Myos, leveraging their existing warehouse stock as collateral.

The agreed-upon terms between HomeHarmony and Myos were as follows:

  • Loan amount approved: €200,000
  • Monthly interest fee: 2%
  • Project duration: 10 months
  • Payments made: Directly to HomeHarmony's account

One month after securing the financing, HomeHarmony commenced the sale of their items. They made the decision to initiate the first repayment three months into the contract.

During the fourth month, HomeHarmony repaid 20% of the loan, prompting Myos to release 20% of their inventory for HomeHarmony to sell.

An additional 40% of the loan was repaid in the sixth month. 

Finally, the remaining 40% was repaid at the end of the tenth month, marking the conclusion of the project.

HomeHarmony successfully met the rising demand for their products thanks to the additional working capital that Myos provided.

This support significantly contributed to the overall growth and success of their business.



Ultimately, choosing a funding option hinges on your specific business requirements and the intended purpose of the funds.

For numerous small business owners, a short-term business loan is more suitable.

This loan type allows businesses to quickly obtain the funds they need to implement their plans and achieve tangible results.

However, certain entrepreneurs may discover that their business objectives necessitate long-term financing.

Regardless of the option you lean towards, it is crucial to collaborate with a lender who comprehends the unique needs of small businesses.


While many traditional lenders offer long-term loans, not all possess the experience and expertise to support small business owners.

In the case of short-term loans, alternative lenders like Myos simplify the application and funding processes, providing a seamless experience for small businesses in urgent need of rapid funding.

Borrow between €10.000-2.500.000 for business growth channels like product launches, marketing campaigns, and inventory expansion.

Myos offers the following benefits to any ecommerce seller:

  • No need for credit checks
  • No personal guarantee, only goods as collateral
  • No fixed costs
  • Flexible repayments terms, up to 24 months
  • No early repayment penalties
  • Fast, online application with access to funding in 72 hours!

So, sign up with Myos today and grow your business 5 times faster with our asset-based funding solutions!


When Is a Short-Term Loan Beneficial?

Short-term loans are beneficial when you require immediate cash flow solutions, want to take advantage of time-limited opportunities, or need to bridge temporary gaps in funding.

They are also suitable for businesses with fluctuating cash flow or those looking to build credit quickly.

When Is a Long-Term Loan More Advantageous?

Long-term loans are advantageous when you have substantial capital requirements, such as purchasing assets, expanding operations, or undertaking large-scale projects.

They provide stability, lower monthly payments, and allow for more extended repayment periods.

Can I Switch between Short-Term and Long-Term Loans?

Yes, depending on your business needs and financial situation, you can switch between short-term and long-term loans.

For example, start with a short-term loan to meet immediate needs and then transition to a long-term loan for more substantial investments or ongoing financing.

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