Most businesses steer clear of the realm of business loans to avoid complicating their lives with debt payments that can last years. However, at some point, if you believe that this lump sum can alter the course of your company, a long and hectic tenured loan is not your only option!
Short-term loans help you meet your immediate capital needs, helping you maintain a healthy cash flow while covering your costs. Be it business expansion or immediate capital needs, a short-term loan gets you access to funds in an instant. In this blog, we delve deeper into the concept, types and advantages of short-term loans to help you choose the best one for your business.
Features of short term business loan:
Here are some of the general things to consider before opting a short-term loan.
Interest rates
Due to the shorter repayment periods, the interest rates for short-term loans tend to be comparatively higher than long-term loans. However, the total interest paid over the shorter term may still be lower than that of a long-term loan. It can generally vary from anywhere between 1% to 150% solely depending on the lender and amount.
Process of approval
The biggest of a short-term loan is its approval process. With less rigid eligibility requirements and faster fundings than long term loans, short-term loans act as the most accessible option to counter immediate financial needs. They majorly follow a paper-less approach and are disbursed within a few days.
Collateral requirements
Short-term loans may or may not require collateral depending on the lender and the amount incurred. However, an unsecured business loan may typically come with higher interest rates to compensate for the increased risk the lender undertakes.
Flexibility
Short term loans can be customised as per the borrower’s needs, that is, the loan and the EMI amount can be suggested by the borrower, generally under the condition that it doesn't exceed 12 months. These loans can equally be taken up by both salaried and self-employed individuals.
Types of short-term business loan:
Choosing a short-term loan that suits your needs shouldn’t be a complicated process. Here is a list of the 4 most effective types of short-term loans available for a business in india.
1. Invoice discounting
This credit option enables businesses to leverage their unpaid invoices to secure hassle-free capital at a predetermined percentage of the invoice value. Repayment of this debt, plus interest and fees, occurs when the business receives payment from its customers.
Make the most out of your unpaid invoices with invoice discounting on TapCapital. If you are a business looking for an instant funding option using your invoices, Tap here.
2. Line of credit
A line of credit is an unsecured credit option for businesses that are aimed for both short and long term purposes. A line of credit allows a borrower to gain access to funds up to a predetermined limit. Similar to a credit card, a line of credit provides flexibility in the borrowing amount. The borrower can get access funds solely based on his needs, and interest is only charged on the amount borrowed.
3. Vendor financing
Also referred to as trade credit or supplier credit, this financial option enables businesses to obtain funds from their suppliers. They can then utilise this money to purchase the services offered by the lending vendor. Interest is typically not charged unless the debt remains unpaid past the due date.
4. Business credit cards
Similar to personal credit cards, businesses can opt for a business credit card that compliments their spending needs. Such cards come with several perks such as cashbacks, milestone bonuses, and reward points on transactions and helping multiply their savings.
How can short-term loans help your business?
- Short-term loans can help cyclical businesses to counter unexpected cash flows during seasons with comparatively lower business.
- These loans aid in times of the requirement of quick hires or the need for more equipment for specific projects.
- In the case of pending payments such as invoices, you can avail a short-term loan to get over the temporary hump.
- Every crisis in the business domain happens without notice. Be it a computer malfunction or amore serious case, a short term loan helps you counter this by quick disbursals of funds.
Conclusion:
Whether you are a budding start-up or an established enterprise, unexpected funding needs are an inevitable part of the business landscape. To counter such unforeseen hurdles and tight cash flows, a short-term business loan might be the perfect choice for you. However, with quick disbursals, comes fast repayment periods. Therefore, before opting for a short-term loan, carefully examine your needs and risk tolerance to avoid delayed repayments.
If you are looking for hassle-free funding options for your business, Tap Capital stands out as your primary option. Talk to our experts and craft a curated plan to get access to instant funding for your budding business!
FAQs On Short Term Business Loan:
1. What are the benefits of a short-term loan for businesses?
Short-term loans offer businesses quick access to capital for immediate needs such as covering operational expenses, purchasing inventory, or seizing growth opportunities. They typically have faster approval processes and can help improve cash flow management without long-term financial commitments.
2. What is a short-term loan calculator?
A financial tool like a short-term business loan calculator is required to figure out the timeline and business loan interest rate that will suit businesses the most.
3. Where can I do invoice discounting?
Head over to TapCapital to avail the best invoice discounting deals in the market.
4. What are the interest rates for short-term loans?
Interest rates for short-term loans can vary widely depending on factors like the lender, the borrower's creditworthiness, loan amount, and the duration of the loan. Generally, short-term loan interest rates can range from around 6% to 36% or higher in India.