Long Term loans usually have a higher interest rate. This is because the money given out as loans is tied up to and could have been used in other money making projects, increasing turnaround profits. Conversely, short term loans have small interest rate but require payment of the whole loan in a short time. Let’s say a business has a US$10,000 capitalization and earns a 20% net profit at stock turnaround at month end. This means a total of US$12,000 money at month end. Applying another US$10,000 as a short term loan at 5% interest monthly at 10 month maturity or US$1,000 principal payment per month. At month end, the total working capital of US$20,000 yields US$4000 less US$500 interest payments less US$1,000 principal payment leading to a profit of US$2,500 per month for a total US$25,000 in 10 months in 20 months this is US$50,000 with a repeat loan.
Applying a long term Small Business Financing of also US%10,000 at 10% monthly interest or US$1,000 for a 20 month loan maturity and US$500 per month principal payment. This results in a monthly profit of also US$4000 per month less US$1,000 monthly interest and US$500 principal payment for profit of US$2,500 at the end of the month. After 20 months, the profits would also be US$50,000 at double interest rates. However, long term interest rates are rarely double short term interest rates and thus proves that long term Business Finance are better. Small Business Finance or Personal Loans such as these are offered by persons and lending institutions collateral free in the internet.