What are short term business loans?
Your business might often come to a standstill because you’re in need of some cash. This can be a problem and can prevent your business from growing. That’s why there are short-term business loans that you can avail to meet the temporary cash crunch.
So, what is a short-term business loan?
A short-term business loan is a loan availed for a period of few months to a year, from either a bank or a financial institution, to meet your temporary cash needs. These are mostly collateral-free depending on the lender and the terms of the loan.
How are they different from a long-term loan?
A long term loan is usually a secured loan meaning it requires collateral. Whereas, a short term loan is generally unsecured i.e. it is collateral-free. The interest rates of short-term loans are also slightly higher considering they’re collateral-free. Long term loans can go up to 15 years, unlike a short-term loan that is only for a few months or a year. Also the loan amount is smaller in short-term loans compared the loan amount in a long-term loan.
Some examples of a long-term loan are – Home loan, car loan, education loan etc. Some examples of short term loan are working capital loan, start-up-loan, GST business loan, vendor financing, line-of-credit etc.
What are the types of short-term business loans?
There are various kinds of short-term business loans that can meet your short-term business needs. Few popular ones are –
- Working capital loans – A working capital loan is a short-term business loan that will help you fund your day-to-day operations such as cash flow requirements, bills, salaries, inventory etc. They’re usually unsecured and are availed by small and medium scaled enterprises.
- Machinery & Equipment loan – Sometimes business can be on hold due to a faulty machine or a sudden breakdown in machinery. To deal with this you should avail a machinery and equipment loan that will help you replace or upgrade your equipment. It can also arrange quick funds to purchase small-scale machinery. So machinery and equipment loan is a short term loan to meet sudden breakdowns in equipment used for business. You can use it to even buy computers or printers.
- Flexi business loans: Such a short-term loan gives you an approved pool of funds from which you can borrow any number of times. They’re of great help to meet short-term business needs such as buying inventory or to stabilize cash flow. Under these loans, interest is charged only for the amount you utilize. Something like an overdraft facility or line of credit.
- Loan against securities: Another type of short-term loan is a loan against security. The security could be company stock, bonds, mutual funds, insurance etc. Basically, by pledging some security you can avail a short-term loan for your urgent business requirements.
- Credit card loans: Here you can avail a loan against your unutilized credit card limit. And sometimes some lenders might give you a loan above this limit. The duration of these kinds of loan can be for a concise period, anywhere from 2-6 months.
What is the eligibility criteria for a short-term business loan?
This may vary depending on the lender, but at FlexiLoans anyone who meets the following criteria can apply for a short term loan –
- Business with at least 12 months history
- Annual Business Turnover of at least 24,00,000 rupees
What documents do you need to apply for such a loan?
If you’re applying for a short-term business loan online the documents you would need are –
- All Bank Statements of last 6 months
- KYC documents for yourself and your organization*
- Financial documents*
- Shop Establishment Certificate
Note: Documentation may be different if you’re applying for a short-term loan from a bank
What are the features of a short term loan?
- EMI based loans
- One-time processing fee up to 2%
- No collateral required
- Repayment option: Monthly/Weekly
- Flexible repayment options
- Interest rates based on eligibility
- Flexible tenure up to 36 months
- Online or offline business can apply
What are the advantages in applying for a short-term business loan online?
- Disbursal within 48 hours
- Quick and seamless processing
- Funding up to Rs.1 crore
- Fully online process
How to apply for a short-term business loan?
- Fill an online application form on FlexiLoans. This should take less than 15 minutes
- Upload necessary documents and a credit score will be generated in less than a day
- Sign the documents and get the loan approved in less than 48 hours
So you can see how you can leverage a short-term business loan for your company’s growth and expansion. Short-term loans help bridge the gap of a temporary cash crunch so the normal business flow isn’t disrupted. Most lenders nowadays offer short-term loans to SME’s up to Rs.1 crore. They’re usually collateral-free and come with reasonable interest rates.