Every Business is different so is the needs of the business. An adequate amount of money is the need of every business but the requirement of money may come differently to different businesses. Sometimes we may need a really large amount of money whereas some other times a small amount is enough to fulfill our needs. In the same way, some businesses need money for the long term and some other businesses may need it just to run the offseason.
Finding the right business loan for your business is neither easy nor quick. One needs to invest some quality time in finding out the best business loan for the business. With the different types of business loans that are available in the present market, you need to be sure about the product you are selecting. The short term and long term impact of your loan in your business have to be foreseen before choosing any product. In today’s article, we will learn about the short term business loans and the pros and cons of the same.
What is a Short Term Business Loan
A short term business loan is a kind of financing tool offered by fintech companies. This is a business loan for a short period. The short term business loans come in the form of both instalment loans and business lines of credit. Most of the short term loans are collateral free loans. Short term business loans are also called bridge loans as it covers the short term monetary crises. Short term business loans are much helpful for start-up businesses and SMEs as getting a traditional business loan is much difficult at this stage of the business. Unlike traditional bank loans, a short term business loan can be availed without following a cumbersome process. A short term business loan can be used to serve any kind of business purpose such as using as working capital, expansion of business, hiring new employees, running a marketing campaign and so on.
Pros of Short-Term Business Loan
The processing of a small business loan is much smoother than a traditional business loan. Unlike the tedious process of a traditional business loan, most the steps of loan processing happen online which saves much time and effort of both lender and borrower. Once your loan is approved, it takes just a few hours to get the loan disbursed.
The documents required for a short term business loan are very few. Just a few basic personal and business documents are enough to get the approval of the loan application. The minimal documentation speeds up the whole loan processing.
The disbursal of a small business loan takes just a few days. If you are in an urgent need of money for your business, only a small business loan can help you to fight those emergencies. Because of online processing and minimal documentation, fintech companies are able to disburse faster than traditional business loans.
Getting approval on the small business loan is much easier than the traditional loans. The traditional business loan comes with stringent loan eligibility which is quite difficult to meet for the new businesses. But the eligibility criteria of a small business loan is much flexible. One can easily get qualified for a small business loan.
Cons of Short-Term Business Loans
The Loan Term
As the name suggests, this type of loan is a short duration loan. The loan term ranges from 3 to 18 months. The shorter duration makes you free from debt sooner but it will make the EMI amount bigger. So make sure that your cash flow is good enough to run the business while paying hefty EMIs of small business loan.
Higher Interest Rates
The short term business loans attract higher interest rates. As a short term business loan is an unsecured loan, the lender keeps the interest rate high to minimise the loss in the case of NPA. The quick disbursal, minimal documentation, flexible loan eligibility all come at the cost of a high rate of interest on the loan.
Risk of Being Debt Trapped
The short term loans have high EMI amounts. Generally, short term loans are taken by people with an urgent business requirement. If it happens that you face another monetary emergency during the time of repayment, you will need to take another loan to refinance the previous one. In this way, many short term business loan borrowers become the prey of debt traps.
The Bottom Line
Every loan has pros and cons including short term business loan. Many a time a short term business loans can make your business survive during hard times. Only if we make informed decisions and become sensible towards our credits, we can make the best use of it.