Ideally, you can generate enough cash to cover expenses, whether it is in your personal budget or for a company. However, sudden expenses may arise that may require taking a loan. You may have some slower times financially or you may want to borrow money to make an investment that will ultimately add value. If you can expect to see an upturn in finances or a return on an investment relatively quickly, it may be worthwhile to consider taking on short-term debt rather than a long-term loan. Paying off debt for many years can be a burden and you may be concerned about a financial downturn at some point. Taking a loan for the short-term can prevent you from having to pay premiums on a consistent basis and can soon free up your money for other uses.
Short-term debt can be taken in the form of a loan from a bank or a private lender. With short-term loans, premiums are higher because the period of repayment is shorter and interest rates are higher. This kind of loan is often available in an unsecured form, because banks may be unwilling to extend a long-term loan if there isn’t a substantially valuable asset like a home. In some cases, the borrower is not refused a longer term loan, but may actually prefer to take a loan for only a few years or months rather than for decades, like a mortgage. This is the case if the borrower expects to make a lot of money in a short period of time and eliminate the debt.
The apparent disadvantage of a higher interest rate for a short-term loan can be cancelled out by the opportunity the loan may provide to make a lucrative investment. When the money is made, the borrower can then pay off the loan entirely in a short period of time and not be stuck with the high interest rates or the elevated premiums. Short-term loans have the advantage of providing investors capital to make high-value deals they wouldn’t ordinarily be able to make without financing. In addition, quick financing may be needed for businesses to fill orders or to make an acquisition. If the investment is going to be immediately additive to the business, the loan can be taken care of quickly.
Paying off a loan relatively soon after it is taken can provide financial freedom to individuals and businesses. Being saddled with debt can restrict opportunities and create pressure. Short-term debt allows this pressure to be lifted soon.