SHORT-TERM LOANS IN CAPE TOWN
Let’s explore more about what short-term affordable loans are
We’ve all heard the horror stories: A business owner operates in Cape Town and needs cash fast, so they take out a short-term loan. But soon, they’re stuck in an endless cycle of greedy lenders and crushing debt, and there’s no escape. Sadly, this does happen — and it happens way too often. People accept what seem like agreeable terms without realizing how their business’s cash flow or credit will be affected. But that doesn’t mean all short-term loans will bankrupt you. If you’re a cautious and diligent borrower, a short-term loan could be just what you need to push your small business in the right direction. Let’s explore more about what short-term affordable loans are, why they’re dangerous in the first place and when they actually do make sense for a small business.
As you might guess, a short-term loan is a smaller loan with shorter terms and faster time-to-funding than other loans. They’re generally very versatile, as far as loan products go. Some types of loans can only be used for certain purposes, like financing equipment or purchasing property, but short-term loans don’t usually come with those kinds of restrictions. The most common uses are a need for more working capital, taking advantage of unexpected business opportunities or covering for damages in emergency situations. Short-term loans are typically smaller than longer-term loans, but their term lengths are short — often between three and 18 months — and they’re quickly attainable.
Whereas you might wait months for approval of a Small Business Administration (SBA) 7(a) loan, you’d only need a few days, if that, for plenty of short-term loans. In exchange for these major pluses, you’ll nearly always pay a short-term loan back in daily installments, with a high-interest rate — and there’s the rub. There are two main pitfalls with short-term loans — their prices and their payment schedules. If you understand how they work, then you’ll be able to steer clear of the problems you might have fallen prey to. First, short-term loans are just dang expensive. There’s no way around it. Fast cash is pricey cash — and that’s a sustainable model for lenders, because people will always need money unexpectedly quickly. Say you take out a R100,000 loan for one year with a factor rate of 1.18. Short-term lenders often put their fees in terms of factor rates, but you can see it as an interest rate, too. In this case, you’d pay back a total of R118,000 by the end of the year. If you’re making the standard daily payments, with 22 payment days in the average month, you can expect to have 264 payments of R446.96 each. Your short-term loan’s actual APR, in that case, would be 33.98 percent.
Not quite chump change. In fact, you could find medium-term loans with half that APR (if you’re an established borrower) and SBA loans one-tenth as expensive (which are difficult and slow to qualify for). Although your terms might sound fair, you have to remember that it’s all relative. Second, there’s that pesky daily payment schedule to hold fast to. If you own a restaurant or manage a retail store, then you’ll probably have a daily influx of cash you can put towards those loan payments. But if your business relies on fewer or sporadic payments, then you might have some trouble with such a regular schedule. A daily payment could easily cut into your cash flow flexibility and restrain your options — which might’ve been the reason you looked for a loan in the first place.