While you are planning for setting your business or expanding the existing one, you may apply for short term Business
Loans for funding. Here is all that you should know about these loans before you apply for one.
What are short term Business Loans?
Short term Business Loans were created to assist businesses for a short duration financially. This loan can be
used towards expanding the business, adding more manpower and towards operational expenditure, etc. Short term
loans, as the name suggests, aren’t given for a longer duration and have to be repaid within a year’s time. Such loans
come handy when you fail to get a long term loan from a bank or financial institution. Short term loans are unsecured in
nature, i.e., they do not require any asset as collateral; that’s why they are also known as unsecured short term
Business Loans.
Features of short-term loans:
- Short term loans are usually disbursed quickly.
- These loans can be availed by both self-employed and salaried individuals, depending on the terms laid by the lender.
- The application and transaction done during the course of a short term loan are mostly paperless.
- The Equated Monthly Installment (EMI) tenure is decided based on the income and repayment capacity of the borrower.
- Short term loans can be customized as per the borrower’s needs, i.e., the loan amount and the EMI amount can be decided by the borrower, but it shouldn’t exceed 12 months.
- Short term loans have higher interest rates than Personal Loans . Since the duration is lesser, the borrower pays less money towards the rate of interest.
Types of short term Business Loans:
A) Trade Credit
It is like a Credit Card but for business. A credit limit is set, and the borrower is expected to spend within the
limit. The repayment is also done in the same way we pay our Credit Card bills. The bill is generated based on the amount
we spend each month, and the final EMI is calculated after adding the total money used and the interest rate.
B) Bank Overdraft
To avail of this category of loan, one needs to have a Current Account. In every account, there is an overdraft
limit, within which the amount can be drawn. The overdraft limit is provided additionally to the Current Account. During a
financial crunch, this loan can be of great help as they do not impose exorbitant interest rates. But they do add additional
charges which the borrower should discuss with the lender.
C) Demand Loans
Demand Loans are working capital short term loans, designed strictly to fulfil the monetary needs of a
business. The duration of the loan can be as low as seven days and can go up to months. The repayment schedule is open-
ended, as the borrower can clear the loan anytime he/she wants. These loans also do not charge any penalty for
prepayment.