While running a small business, you may experience some ups and downs that may lead to some unexpected expenses. In such a situation, applying for a short-term business loan can help you manage your business operations. Short-term business loans are loans that are provided by various financial institutions to help you meet your financial needs. These loans have a maturity period of a few months to a year and are unsecured, which means you do not require to keep any collateral with the lender.
As a small business owner, there are various reasons to avail a business loan, such as expanding your operations, purchasing raw material and machinery, etc. Or maybe you need extra capital to pay your employees. In such cases, this loan provides the borrowers with quick access to working capital to fulfil their short-term requirements.
Features of short-term loans
- Short-term loans are ideal for business owners who need funds for only a few months.
- Due to paperless documentation and easy availability, such loans are quickly disbursed by the lenders, usually within a couple of hours.
- Both self-employed and salaried professionals are eligible to secure these loans.
- The Equated Monthly Instalments (EMIs) are decided according to the loan amount, income, and repayment capacity of the applicant. You can also check the short-term business loan EMI calculator to estimate the EMIs to be paid in future. However, the time to repay the loan amount and EMIs must not exceed 12 months.
- Since these loans are unsecured and provided for a shorter duration, the interest rates are comparatively higher than personal loans.
- The interest charged on this loan usually depends on your credit score, repayment history, loan tenure, and the amount you wish to avail.
Kinds of short-term business loans
There are numerous types of short-term business loans that you can obtain depending on your financial needs. Some of them are as follows:
- Bank overdraft
When you are going through a financial crunch and do not have sufficient funds in your account, the lender may allow you to borrow some money as an overdraft. You can avail this loan up to a certain limit and at reasonable interest rates. Further, this credit facility is extended only to the applicants with a current account.
- Working capital loans
If you need funds to finance your company’s day-to-day operations, then a working capital loan can be a perfect choice. These loans are not used to purchase long-term assets and are instead availed to fulfil short-term needs, such as paying bills, employee’s salary, cash flow requirements, etc. The working capital loan is an unsecured loan which means you don’t need to keep any collateral with the lender. However, business with low or zero credit rating has to securitize the loan.
- Demand loans
A demand loan is another type of business loan taken to fund start-up businesses, cover daily business expenses, purchase raw material and short-term assets, pay salaries and rent, and more. As the name suggests, these loans are repaid on demand of the lenders. The tenure is not fixed, which means it can be as low as seven days and can go up to months. Besides, this loan is secured in nature, and the borrowers can reimburse it at any time without any prepayment charges.
Applying for a short-term business loan
Applying for a short-term business loan is a simple process. You can apply for a business loan through a lender, whether online or by visiting the concerned branch. However, before you select a loan, it is advisable to compare the different offers of business loan interest rates available in the market to get the best rates. You have to fill out an application and submit the documents required by the lender. Plus, you must ensure that you meet the eligibility criterion of the short-listed lender to avoid any delay in the loan disbursement process.
After receiving your request, the lender evaluates your application and ascertain the risks associated with the process. If approved, you can receive the short-term business loan directly in your account within 24-48 hours.
On the whole, short-term business loans are granted to meet immediate business needs. If availed for a longer period, these loans can prove to be expensive and risky for your business.