What is a Short-Term Business Loan

A short-term business loan has a brief repayment period ranging from a few months to one year. It helps businesses cover immediate needs like cash flow gaps, urgent expenses, or inventory stocking. While these loans usually get approved quickly, they may come with higher interest rates.

In today’s fast-paced business world, short-term business loans provide MSMEs with quick funds to manage cash flow and seize opportunities effectively. They are ideal for MSMEs seeking a quick capital boost without the burden of long-term debt, enabling flexibility to address temporary challenges or invest in growth opportunities.

Features and Benefits

1. Quick Access to Funds: A key advantage of short-term loans is the quick disbursement of funds. With streamlined application processes and minimal paperwork, MSMEs can get their loans approved in a few hours to a few days.
2. Flexible Eligibility Criteria: Unlike traditional bank loans that often have stringent eligibility requirements, short-term business loans offered by FinTech companies like FlexiLoans have more flexible criteria. Even if you don’t have a long credit history or collateral to offer, you can still qualify for these loans based on your business’s cash flows and growth potential.
3. Unsecured Loan Options: Many short-term loans are unsecured, so you don’t need to pledge any assets as collateral. This is particularly beneficial for MSMEs that may not have significant assets to offer as security.
4. Varied Loan Amounts: Short-term business loans come in various sizes to cater to different business needs. Whether you need a small amount to manage a temporary cash crunch or a larger sum to fund a short-term project, you can find a loan that fits your requirements.
5. Repayment Flexibility: Many lenders offer flexible repayment options for short-term loans. Based on your cash flow patterns, you can choose to repay the loan in weekly, fortnightly, or monthly instalments.

Also Read About: Is Opting For A Long-Term Business Loan A Right Decision

Documents Required for Short-Term Loans

To apply for a short-term business loan, you’ll need to submit certain documents, such as:

• Business Registration Documents: Certificate of incorporation, partnership deed, or proprietorship registration to prove legal business existence.
• Business Plan: Objectives, financials, market analysis, and repayment strategy to show business viability.
• KYC Documents: ID and address proofs like Aadhaar, PAN, passport, voter ID, or license for all owners.
• Financial Statements: Profit & Loss, Balance Sheet, and cash flow statements from past years to reveal financial health.
• Bank Statements: Recent 6-12 months of bank transactions to demonstrate cash flow.
• GST Documents: GST registration and returns for applicable periods for compliance.
• Proof of Ownership/Lease: Ownership deed or lease agreement to confirm business location.
• Collateral Documents: Property or asset proofs if applying for a secured loan.
• Business Licenses: Necessary permits based on industry and regulations.
• Debt Obligations: Current loan details to evaluate repayment ability.
• Projected Financials: Revenue, expenses, and cash flow forecasts to gauge impact of the loan.
• Business References: References to vouch for credibility and reputation.

Eligibility Criteria

• Business’s Financial Health: Lenders review past profits, expenses, and debts. A turnover of ₹2,00,000 per month is generally enough for approval.
• Credit Score: A high score from timely debt repayments can mean instant approval and lower rates, while a low score may lead to denials or higher rates.
• Loan Amount and Tenure: Bigger loans or longer repayment periods carry more risk. Shorter terms increase EMIs, so use an EMI calculator to budget.
• Business Vintage: A longer business history suggests stability and can ease approval. Even a one-year vintage may qualify with strong financials.
• Business Type: Stable industries get lower rates and faster approval. Riskier sectors might face higher rates or denials.

Interest Rates and Charges

The business loan interest rate for short-term loans is generally higher than long-term loans due to the shorter repayment tenure and higher risk perception. Interest rates can range from 15% to 30% per annum, depending on the lender and your business’s risk profile.

How to Avail Short-Term Business Loans

1. Check your eligibility and gather the required documents.
2. Compare loan offers from different lenders, considering factors like interest rates, repayment terms, and charges.
3. Select the best offer and fill out the online application form.
4. Submit the required documents and wait for the lender to verify them.
5. Upon approval, they will disburse the loan amount to your bank account.

Conclusion

Short-term business loans offer MSMEs a fast and flexible financing solution, helping them tackle immediate needs efficiently.

There are various types of short-term loans available, including:

1. Working Capital Loans: Designed to cover daily operational expenses.
2. Invoice Financing: Allows businesses to borrow against unpaid invoices.
3. Merchant Cash Advances: Provides funds based on future sales.
4. Bridge Loans: Used until permanent financing is secured.

If you’re looking for a reliable partner for your MSME business loan needs, consider FlexiLoans. With their online business loan offerings, you can get up to ₹1 crore with minimal documentation and flexible repayment options. They tailor their MSME loan products to meet the unique needs of small businesses.

Also Read About: Pros and Cons of Short Term Business Loans/

FAQs

1. Can I get a short-term business loan without collateral?
   Yes, many lenders offer unsecured short-term loans that don’t require any collateral. However, you may need a personal guarantee or a strong credit profile to qualify.
2. How quickly can I get funds after applying for a short-term business loan?
   The turnaround time for short-term business loans is quite fast. With lenders like FlexiLoans, you can get funds in your account within 24-48 hours of loan approval.
3. What can I use a short-term business loan for?
   You can use a loan for business for various purposes, such as working capital needs, inventory purchases, equipment upgrades, or seasonal business requirements.
4. How does the business loan interest rate for short-term loans compare to long-term loans?
   The interest rates for short-term loans are generally higher than for long-term loans due to the shorter repayment tenure and higher risk perception. However, the actual rate will depend on factors like your business’s financial health, credit profile, and the lender’s policies.

5 Tips for Managing Working Capital in Your Service Business

  Previous Blog