Medium-term loans can have varying definitions but generally, mean loans that need to be repaid within one year. The Borrower will obtain a total loan in advance that needs to be repaid through routine installments within a predetermined period of time.
Compared to short-term loans, medium-term loans have lower interest rates and longer payment terms. Medium-term loans usually require more stringent requirements. For example, the borrower must have a higher credit and income score and longer operational history.
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Are medium-term loans right for my business?
Here are some general criteria that can help you to assess whether a medium-term loan is suitable for your business:
- You don’t meet the requirements for getting a traditional loan: Other traditional banks and lenders usually have strict loan terms. Some of these requirements, for example, must have a minimum operational history of two to three years or a minimum income of $ 200,000 per year. When compared, alternative lenders that provide regular mid-term loans offer more flexible terms. Requirements can vary but minimum income is usually at $ 100,000 per year and a minimum operational history of one year. Thus, medium-term loans can be a more accessible option for small businesses or newly established businesses.
- You need quick access to funding: An alternative lender can approve your application in less than 24 hours. You can also get funding after two days after your application has been approved. Thus, this can be the right option for businesses that need funding as quickly as possible.
- You need to spend a considerable amount of money: You can see medium-term loans as loan options that are between short-term and long-term loans. This can be an appropriate choice if you do not want to take long commitments but need a large enough amount of initiative to accelerate your business growth.
Tips to help you prepare for a medium-term loan application
Build your credit score
Beyond the business credit score, personal credit scores also have a large impact on loan applications for businesses. A personal credit score shows how well you are able to manage personal finance which is an indicator of whether you can be relied on to fulfill long-term loan payments in a timely manner. In addition, a high credit score can help you get more favorable terms for the loan being proposed.
To start building your credit score, here are a few steps you can take:
- Always pay on time: Making payments on time is a major factor in increasing your business credit score. Cargy Hender, the co-founder of the business credit score company called Daf, stated that late payments will be reflected in the business credit report even though it’s only a few days late. If possible, make an early payment. Hanson explained: “Some business credit score systems such as Paydex scores made by Dun & Bradstreet require earlier bill payments to get a score of more than 80 (maximum 100).”
- Sending payment history to credit reporting agencies: Payment history, which is a record of your payments so far, plays an important role in building a business credit score. Good payment history can help build the credibility of your business; this becomes your track record of making payments on time and can help increase your score. Some suppliers and vendors may not send this information to a credit reporting agency, so you better make sure to part with their business debt. If they don’t report, you need to add this payment history information through a credit reporting agency.
To build your personal credit score, you must:
- Monitor your credit report regularly: Check your credit report at least once a year and make sure you report immediately if you find a mistake because a small mistake such as a calculation error can affect your credit score.
- Make payments on time: As a business credit score, paying on time is a major factor in building your personal credit score. To prevent the possibility of forgetting etc., it is helpful to set up automatic payments or schedule monthly reminders.
What are the funding options for small businesses that I can consider?
Medium-term loans can be the right choice for SMEs that are currently in the development stage and want to accelerate their growth. For new businesses or small business owners who are looking for a shorter loan term, this is not the ideal solution.
Business credit limits, bill financing, or unsecured loans are alternative funding options that can be considered by SMEs. This method is commonly available through alternative lenders that are more suitable for small businesses because of flexible loan requirements, short application processes and quick access to funding.