There are times when any business can run out of funds and may not have enough at hand to maintain daily operations. They may also require funds for purchasing the latest equipment to stay in course with market requirements.
In such cases, businesses can rely on short term loans for the necessary financial assistance. Timely availability of finances is vital for operational efficiency and the future prospects of any business.
What is a short-term loan?
The concept of short-term loans can be represented as a source of immediate working capital for any business. These loans generally provide a substantial sum of funds with tenors of up to 5 years, unlike another term loan which comes with longer terms.
According to financial experts, short term business loans have the potential to make or break a business when it needs external financing. According to studies conducted by the National Small Business Association, around 19% of the cities of small business owners are lacking in available capital which is a major challenge in their growth and around 82% of the businesses fail as a result of improper cash flow.
Why opt for short term business loans?
Short term business loans come with a lot of facilities, some of which are given below:
- Flexible tenors
The terms which are available on the short term loans are appealing to many borrowers. As a business owner, you can use such funds to finance an expansion project and set a tenor in tune with the timeline of that project.
- Unsecured or collateral-free
A lot of short term business loans are unsecured, which means that it does not need any collateral as loan security. It omits the need for tying up any assets which can prove to be really beneficial for the SMEs.
- Faster approval
This kind of loan has a faster process of approval as compared to other types of loans. It is especially true in case the loan needs collateral. The lender does not have any appraise on the property speeding up the process.
- Diversity in usage
The main benefit of these types of loans is the fact that one can use these loans for a variety of expenses, instead of adhering to particular rules. From a temporary boost to your working capital to leasing new equipment, small businesses can utilise such funds as per their requirements.
The eligibility for these short term business loans are as follows:
- They need to be of age between 22 years to 55 years.
- The borrowers need to run their businesses for 3 years at least.
- IT Returns for the business need to have been filed for the last year.
- The business turnover for last year needs to be audited by a CA.
Rates and charges associated with the short term loans
Rate of Interest usually starts from 18%. A processing fee of 2% is also levied when you apply for a loan.
Other similar charges include:
- statement charges: Rs.50
- interest and principal statement charges: Not required
- penal interest: 2% p.m.
A lot of SMEs prefer to opt for short-term loans. The flexible tenors and the various other associated facilities make these loans the optimal choice for certain situations, especially when the fund requirement is urgent. A lot of NBFCs offer these loans with several facilities to make it easier for SMEs.
Consider external financial assistance an investment to achieve business goals over the next few years against a small financial liability per month. All you have to do is plan your business finance accurately enough to guarantee results.