Short-Term vs Long-Term Business Financing

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You need to find a solution for financing your small business. A momentary sense of panic hits. Whether it’s for a growth opportunity or a short-term cash infusion to cover expenses, it’s normal to feel overwhelmed or anxious as you approach the borrowing process.

Navigating the lending landscape can be daunting — but it doesn’t have to be this way. With a basic understanding — starting with the difference between short-term vs long-term business financing — you can move forward with greater confidence.

Short-term vs long-term business financing

As their names imply, the primary difference between short-term and long-term business financing is how long you have to pay back the loan. Typically, long-term lending options are paid back over a number of years, while short-term lending options are paid back over a period of months or as little as two years.

Your choice of short-term vs long-term financing will also be determined by:

  • The amount you need to borrow.
  • How quickly you need the funds.
  • The type of lender you’ll borrow from.
  • The type of collateral you’ll provide.
  • Your business’ overall financial health.

From 2015 - 2017, nearly 42 % of small businesses used short-term financing to borrow $10,000 - $50,000.

Short-term vs long-term business financing amounts

Short-term business financing options are for smaller amounts while long-term financing options are for larger amounts. Because short-term financing is for smaller amounts, you pay them back more quickly at a higher interest rate and there’s a shorter approval process. As long-term business financing options are for larger amounts, there’s a longer, more rigorous approval process and it takes more time to pay them back. However, the interest rate is lower than with a short-term loan.

The figures vary, but a rough estimate is that short-term lending amounts are less than $250,000. Long-term lending amounts are in the $500,000 range.

Learn More: How to Read a Cash Flow Statement.

Short-term vs long-term business financing sources

As you’d expect, brick-and-mortar banks are the most common source for long-term business financing. If you’re looking for a traditional short-term “term loan” where you complete a detailed application, including documentation to prove that you repay that amount, you can also go through a large or small bank. (Think sitting across from someone in a business suit.)

However, the market for short-term financial lending has grown rapidly. As a result, businesses can choose from a range of short-term lending options. Again, this doesn’t exclude banks. It simply expands your range of options to include online lenders, with quick approval times and other short-term financing options you may not be aware of. (Plus, no business suits.)  

According to a recent study, from 2015 to 2017 the amount of small business online lending activity increased 50% — representing $10 billion in financing. The same study found that approximately 42 % of small businesses borrowed between $10,000 and $50,000 with the average being $55,498.

online business financing infographic
(PRNewsfoto/ETA)

Traditional short-term business financing options

If you’re not sure you want a traditional term loan, you can also look into a business line of credit as a short-term financing option. A line of credit is different than a loan as it sets up a pre-determined amount that you can draw from whenever you need. A business credit card is also another more traditional short-term business financing option.

Because loans, lines of credit and credit cards are the road more traveled, they also require a more in-depth application process and proof of a stable payment and financial history. In other words, your business has to have a solid credit history and financial track record.

Your payment history for loans, lines of credit and credit cards will also be recorded in your credit history. As will any applications for these forms of financing.

Read More: What’s a Business Credit Report?

Not-so-traditional short-term business financing options

While invoice factoring and invoice financing have both been around since the first bazaars opened in ancient Mesopotamia, many businesses owners don’t even know these options exist.

Invoice factoring and financing let businesses who have incoming cash flow tied up in outstanding invoices use these invoices to access short-term funding quickly and easily. While banks don’t offer this type of asset-based financing, online lenders do. In fact, this type of lending is now a multi-trillion-dollar industry.

Similar to invoice-based lending, there are similarly structured short-term financing options that let businesses use their inventory or retail sales as collateral. (A little research can take you a long way in identifying your options.)

Benefits of online short-term business financing

With online financing, such as invoice factoring, businesses don’t have to go through a lengthy application process as they would with a traditional lender. The primary criteria are the invoice, the customer’s payment history and the business’ risk profile.

As a result, the approval process is much quicker and once the business has established a relationship with the lender, the turnaround times can be even faster.

What’s the Difference: Invoice Factoring vs Invoice Financing.

Online lenders and asset-based financing

Online lenders are also more familiar with small businesses. They understand that there are ups and downs with a business’ cash flow and are more willing to work with newer businesses and businesses experiencing cash flow crisis.

Unlike traditional loans, lines of credit and credit cards, when you use asset-based lending, there’s no impact on your business credit history. Online lenders don’t use the traditional credit rating bureaus, nor do they report to them. The relationship you form is with your lender only.

A short-term vs long-term business financing must-know:
How technology can help you manage your cash flow

At PayPie we’re laying the groundwork to bring small to medium-sized enterprises (SMEs) access to affordable funding. First, we’ve developed insightful tools like our free cash flow forecasting that includes a proprietary risk score.

Each report gives a business insights and analysis into how its cash is flowing in and out of their business. In turn, the risk score is an assessment of how other businesses and lenders view your business in terms of establishing financial relationships.

This service is available — free of charge – for any QuickBooks Online user. All you have to do is create a PayPie account, connect your QBO account and run your report. (Integrations with other accounting applications are coming soon.)

We’re working with regulatory authorities to ensure that our invoice factoring will meet all legal and business standards. To find out when this service will be available, register here.

This article is informational only and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional.

Image via Pexels.

A New Era Begins

We’ve come a long way since this all has started. Partnerships, team expansions, development, Alpha release, and even a brand new house – our revamped website. PayPie has been through a lot during all this time and, along with it, our beloved community composed by some of the most passionate and fearless supporters that any company can have has kept always moving forward no matter what. Steadily. Strongly. Imperatively.

Now, at the dawn of a new era for the blockchain fintech scene, emerges a giant. Beta. Beautiful. Bombastic. A landmark in the history of the entire crypto world regardless of nation, community, or industry. A giant born with the greatness of a ground-breaking Intuit partnership to forever change the blockchain landscape.

Welcome to PayPie Beta. PayPie has partnered with the fintech powerhouse Intuit to deliver a QuickBooks Online integration straight at Beta launch. PayPie will now have instant access to millions of QuickBooks Online business users as potential customers since the very beginning. QuickBooks is one of the largest business accounting software in North America having over 80% of market share in the USA. Its online version accounts for a considerable piece of that and follows the latest industry cloud trend.

Small and medium-sized enterprises will be able to instantly connect their QBO accounts to PayPie to have access to their unique PayPie credit score and analytics insights to improve their business’ finances. SMEs’ real financial data histories will be assessed in near-real time by our automated credit risk assessment algorithm and their credit scores will be hashed to the Ethereum blockchain for ultimate transparency.

PayPie’s initial credit assessment and financial analytics insights are live now and available to all small SMEs using QBO as their primary accounting solution in the USA, Canada, UK, and Australia. Once businesses are all set on the platform, they will be able to sell their invoices in the marketplace to have access to fast and affordable funding from global invoice buyers. Our beta platform is live to be experienced with test tokens and improved functionalities will be introduced in stages, including turning the switch to real token usage.

PayPie’s legal team remains closely working with our local authorities to solve any outstanding aspects of the platform and we are willing to take the necessary steps and abide by required regulations safeguarding for the long-term best interests of the company and of our token holders’ community. Our bright future awaits and it will always be built on solid and responsible foundations.

The horizon is coming and it belongs to PayPie. Our marketing outreach starts this week and a comprehensive approach will come to place. Beta is a nice and shiny platform still in very early stages and there are plenty of more developments to come. In last few months, many amazing talents have joined our ranks including a former Goldman Sachs executive with expertise in credit risk assessment with specific expertise background in the invoice factoring industry. We are serious about disrupting the ways that businesses improve their finances and we are going big at it.

Enjoy Beta! We are just getting started!

 

 

 

 

PayPie Launches Its Live Beta With QuickBooks Integration

VANCOUVER, BC, April 30, 2018 – PayPie announced today that the Beta version of upcoming fintech blockchain platform was officially launched with a working QuickBooks Online integration out of the gates. PayPie’s initial credit assessment and financial analytics insights are live now and available to all small and medium-sized enterprises (SMEs) using QBO as their primary accounting solution in the USA, Canada, UK, and Australia.

PayPie is disrupting the way SMEs improve their finances and tackle ongoing cash flow problems. The platform’s Beta allows businesses to seamlessly connect their QuickBooks Online accounts to PayPie to have access to a completely automated financial analysis. The platform’s credit risk algorithm evaluates multiple data points based on the company’s financial history and harnesses the power of blockchain technology to assign each business a unique PayPie credit score for ultimate transparency and reliability. SMEs also receive a complete set of analytics of their financial performance followed by custom insights on how to improve their finances.

“SMEs have a real need to constantly improve their finances and access affordable financing to maintain a healthy cash flow, but that’s often a challenge that most businesses struggle to overcome. By partnering with the fintech powerhouse Intuit to deliver a QuickBooks Online integration at Beta launch, PayPie instantly enables a service to help millions of QBO users to achieve a transparent understanding of how to improve their finances while also providing them with fast and affordable business financing possibilities to come,” said PayPie’s CEO, Nick Chandi.

The PayPie platform aims to enhance financial opportunities for millions of SMEs worldwide and to connect them with a multitude of prospective invoice buyers who can make better-informed decisions on its unique built-in credit risk assessment.

ABOUT PAYPIE

PayPie empowers SMEs to improve their cash flow through prospective access to affordable business financing, insightful analytics, and credit scoring powered by blockchain technology. The platform brings ultimate trust and transparency to the fintech scene by introducing its unique blockchain-powered credit risk assessment based on near real-time business accounting data. PayPie released its Alpha version in January of 2018 and its Beta version in April of 2018. For all things PayPie go to https://www.paypie.com/