Structuring A Loan

6 min. read

There are many different types of loans, so it’s important to match the loan with the need on a time basis.

Short-Term Loans and Lines of Credit

Short-term loans are designed to help meet daily operational needs of a business (salaries, rent, insurance, advertising, supplies, etc.). Such loans are written for a short duration (30, 60 or 90 days) and are based upon the operating or business cycle of the individual business. Operating loans vary in length of maturity since they are adapted to specific business patterns.

Many short-term loans are lines of credit. These are useful because you are only charged interest on the amount you borrowed, even though your credit line may be larger.

For example, you might establish a startup line of credit for $50,000 to pay bills until you have a positive cash flow. Each month, you would take out whatever is needed, and you would only pay interest on the total amount borrowed to that point. If you don’t need the full $50,000, you would save on interest expenses and would only have to pay back the amount borrowed.

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