A business or a person applies for a short-term loan to meet a temporary financial obligation. This is a type of loan in which you must repay the borrowed amount and interest. And the time period in a general scenario is one year.
The market offers you numerous options to choose from. A trade credit lets you buy what you want without incurring any cost. This is the most affordable form of interest-free loan you can have. A bridge loan helps you take care of your day-to-day expenses when waiting for a bigger loan. A personal loan, in the meantime, helps you fulfill a temporary financial requirement. Your lender will determine the type of loan you want here based on your requirements and eligibility. The overdraft facility lets you withdraw money that is not available in your bank account. For this, you must have an amount sanctioned as an overdraft. Line of credit, merchant cash advance, invoice finance; you only have to name your requirement.
Why do businesses and individuals take short-term loans?
Individuals and businesses take a short loan for the following reasons:
- A short-term loan helps a business maintain its flow of cash
If a business wants to function smoothly all the time, it needs a consistent flow of cash. And a short-term loan helps it maintain the same. It is ideal for taking care of the highs and lows of the seasons.
- It assists in handling seasonal variations in demand
There are times when you will have to meet higher demand for your product. And your current budget may not be able to handle it. In such an instance, all you need to do is apply for a short-term loan. It will help you balance the flow of money and take care of the increasing demand for the season.
- It makes rates of interest affordable
If you go for a short-term loan, your lender may offer you a lower rate of interest. This does not apply to all types of loans. Most of the time, those seeking affordable rates of interest rate will have to submit some form of security. This minimizes the possibility of risks. And you get the power to negotiate. You will save hundreds or thousands of rupees in the form of interest when compared with a long-term loan.
- It gives predictability to borrowing.
The country’s economy is going through uncertain times. And no one can foresee how a business will fare five years down the road. A long-term loan will keep you a borrower at least for a few years, irrespective of your business’s financial strength. A short-term loan eliminates this stress and makes borrowing a hassle-free process.
- It gives you money faster
Getting a loan for the short term is quick and easy. This will come in handy, especially during an emergency where you are required to make payments at the earliest.
- The process of application is simpler
Applying for a short-term loan is simpler when compared with its long-term variant. All the lender will need to know are certain basic information:
- Your name and address
- Your financial status
- Your credit card details
- The agency may make a soft inquiry on your credit card.
- All this will not take more than a few hours of your time. If the lender wants more details, it will contact you within no time. Otherwise, all you have to do is to fill up this simple online application.
- You get a loan even with bad credit
If you apply for a loan for a shorter duration, your lender may overlook your credit score. You may be required to submit collateral to avail of lower rates of interest. Even then, it is not going to cause many struggles. The difficulty is short-lived.
Short-term loans also open up a galore of possibilities. You can look to alternative lenders for quick money. You may even try crowd-funding. Peer-to-peer lending is another option worth trying.
Aim for a short-term loan. It minimizes the burden of debt on your business. Your business becomes debt-free within a few months or a year. And you can apply for another loan to protect your finances.