It’s a no brainer. Both a short term business loan and a credit card (when you use it) are debts you’ll need to pay back. It’s essential therefore that when you choose either one, you should be in a strong position to meet the monthly repayment commitments. You don’t want to be paying more in interest than you have to because of delayed or inadequate monthly payments.
If you’re a small business owner or an entrepreneur in need of fast access to funds because you don’t want to miss out on any opportunity that might arise as you grow your business, a short term business loan or a credit card are two great options you have available. Know though that these two financing alternatives have different features, the most important of which (for you) would be the interest rates. A short term business loan, when all criteria are met, generally comes with an interest cost of only 1% to 2.25% per month, payable over a period of 24 months to 60 months. A credit card, on the other hand, works just like a credit line – you can draw from it and use it as the need arises. Its interest rate varies and depending on how good or poor your credit score is, you could find yourself paying an annual interest rate of 29% or more.
Here’s how some small business owners took advantage of these two funding options:
Tia Marta’s Spanish Restaurant
Tia (aunt) Marta has been running her restaurant business for the past two and a half years. Specializing in great Spanish dishes, she caters to a large Hispanic and American community and some local tourists who, judging from word of mouth, can’t get enough of her various delicious types of paellas. Knowing most Hispanic folks shy away from meat during the Lenten season and go for fish instead as a form of religious abstinence, Tia Marta envisions orders (in and outside of the eatery) for her paella de bacalao to double or even triple. The thing is … for this, she sees the need for additional funds to cover the cost of expensive bacalao (a highly-desired codfish that’s dried and salted and usually makes up the main ingredient of rare paellas) and some costly cooking utensils. At the same time, she wants neither to overstock nor understock on these items. What does she do? She plays it smart and safe. She takes a credit card that gives her access to funds if and when she’ll need it. Lent comes in April.
James and Elizabeth Oliver, owners of this mineral water bottling and refilling business, have a different story. The suburban community in which they put up the business was growing and expanding with city folks moving in and taking up residence. Naturally, the demand for their safe and healthy bottled water was rising as well. They knew they had to upgrade. The distilling equipment they saw in a trade show was precisely what they needed. What’s more, it had an introductory price that meant great savings. The sad news? The offer was only good for 60 days. James and Elizabeth had to act fast. Confident that the expected revenues (if they had this equipment) would hit an additional 35-40% allowing them to meet monthly payments, they took a short term business loan and made the purchase. Today, the Olivers are glad they made the right decision.
Lloyd’s Home and Office Furnishing
Kenny Lloyd, the business owner, was happy and yet concerned about getting a deal to furnish the room furniture including beddings of a new, 20-room motel that was slated to open in three months. Kenny’s concern centered on how to have access to a quick lump sum fund that would take care of additional labor and material costs and would enable him to deliver in 60-70 days. An entrepreneur friend suggested a short term business loan since the business could easily qualify. After all, Mr. Lloyd’s business had having been running for a couple of years and had a solid credit history and good annual sales. Kenny did some pencil pushing, worked out the numbers and decided to take a short term business loan. He took in additional craftsmen, purchased the materials he needed and did what needed to be done. He made the delivery three weeks before the motel’s opening, which today is doing great business. As for Kenny … he’s sporting a happy smile.