Short-term business loans are monies borrowed from a bank or financial institution for a specific period of time to cover a temporary shortage of cash.
Businesses go through ups and downs. Often, there are sufficient finances to ensure smooth sailing during productive periods. However, if the market falls, you may have to hunt for alternative sources of funding to meet your short-term financial needs. A short-term business loan from any bank or other financial institution could assist you to manage and expand your firm in this situation.
Short-term Business Loan
If you’re wondering what is term loan, and how short-term business loans differ from long-term ones, read on. Funds borrowed from a bank or financial institution for a specific period of time to cover a temporary cash need can be called short-term business loans. You can take the loan for short periods, anywhere from a few months to a whole year. Unsecured loans offered at high-interest rates are the most common type.
Long-term loans, on the other hand, are often secured loans that are taken out for a longer period of time. Long-term loans can last up to 15 years or longer. Long-term loans, unlike short-term loans, have much lower rates of interest and the amount of loan granted by a lender is relatively higher. Long-term loans include property loans, home loans, student loans, and so on.
Ways to Get a Short-Term Business Loan
Now that you know what is term loan, here are some of the typical ways short-term business loans are availed in India:
- Working Capital Loan: Working capital loans are monies that you can use to fund your business’ day-to-day operations, such as paying bills, managing cash flow, paying employee salaries, stocking merchandise, and so on. Generally, such a business loan is unsecured, can be used to fund a small or medium-sized business, and operates on cyclical sales models.
- Equipment and Machinery Loan: A sudden mechanical failure or a defect in the operation of any piece of equipment could be disastrous for a manufacturing company. You can easily replace or upgrade existing equipment with the help of a short-term business loan in the form of a machinery and equipment loan. It can also provide speedy funding for purchasing small-scale machinery. These loans are also useful when you want to equip your offices with computers or printers for business use.
- Flexi-business Loan: A flexible business loan provides you with access to a pre-approved funds pool from where you can draw as many times as you need. This type of financing can assist in meeting the short-term needs of a business or in stabilising cash flow. In such loans, only the amount you actually use is charged interest.
- Loan against collateral: By pledging some collateral with a bank or a financial agent you can get a loan against your stocks. This loan can be secured by the company’s stock, insurance, mutual funds, and bonds, among other things. The loan can conveniently be used to meet short-term financial demands without necessarily requiring you to liquidate any assets.
- Loan against Credit Card: You can get a credit card loan against your unused credit card limit. Some lenders, however, may provide you a loan in excess of this amount. These types of loans might be for a short length of time, ranging from 2 to 6 months.
- Overdraft: If you need money urgently, but don’t have enough in the bank account, it might be a good idea to enquire about a loan from your bank as an overdraft. The bank lends you money in excess of your account balance, up to a specific limit, for which you must pay interest.