Short Term Business Loans

Short Term Business Loans – Benefits and Risks

By: anujkrpandey
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Short-term business loans are for those who need immediate cash flow to face a financial crisis, be it for the working capital shortage, inventory damages, and sudden hiring requisites or just to give the company a financial boost.

A short term loan does come in handy, but often is considered as a risky venture owing to its higher interest rate! You must’ve heard stories where businesses and got stuck in an endless cycle availing a short term loan, reaching the point of zero return.

However, not all short-term loans are equal.

Do your research, read about these loans, and know the pro and cons of short term business loans. This way, you will become a responsible borrower. The loan might help to build the future of your company.

Here’s a list of some notable benefits and risks of a short-term business loan for your company.

Benefits

Let’s look at some of the major benefits of a short-term loan.

Quick funds for emergencies

A prime advantage is that upon approval, you will receive the funds almost instantly. Some companies even offer loan disbursal within 24 hours. This helps to meet emergency situations aptly.

Quick and easy approval

Requirements to qualify for short-term Business Loans are usually much more relaxed. Even with a low credit score, one can apply for a short-term loan and chances are it will likely to be approved.

But wait.

No bank wants to approve a loan to someone with a low credit score is not up to their standards. So if you need a loan, but have a relatively low credit score, try opting for NBFC’s.

They are more lenient on your credit report and will analyse other factors along with the credit score. Also, a majority of the applications are done online, resulting in faster processing.

Flexible repayment schemes

Short-term business loans have a wide range of repayment options, and they can be paid back easily. As an example, Bajaj Finserv offers Flexi business loan facility on their business loans, allowing you to pay for only the amount you borrow.

This is very beneficial as the debt is cleared off quickly. It reflects in your credit score, and thus makes you more credible.

Risks

Like all good things, short-term business loans also come with a few disadvantages. However, only a few cons are there, and even those can be easily avoided if you are careful.

Some risks involved with this type of loans are-

High interest rates

As you repayment tenor is short, the rate of interest is on the higher side.

A high interest rate can prove problematic unless you have a good idea about your projected revenue and profit, before applying for the loan.

Debt cycle

If you’re applying for a short-term loan, you need money as soon as possible; but what if it’s time to repay the loan, but you still need money?

Don’t take another short-term business loan to pay back the existing loan. It will create a cycle, and it is tough to come out of it.

Need of a steady income

Lenders have a more lenient approach while approving a short-term loan. This makes it available with providing a lot of traditional financial information. If a business stops returning significant revenue or an emergency arises, it can prevent you from repaying the loan.

Short term loans need to be repaid quickly, that’s the nature of it. And it is not wise to apply for it unless you have a guaranteed steady return in future.

You must have heard horror stories about how greedy lenders and sky-high interest rates lead businesses to their demise, but not all short-term business loans are created equal. There are organisations like Bajaj Finserv whose relaxed eligibility criteria, pre-approved loans, flexible repayment schedules, and quick sanctioning process aid you in meeting your business goals with ease.

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