Short-term commercial loans are highly beneficial for start-ups and are rapidly becoming popular with each passing day. The number of financial benefits offered by such loans cannot be ignored, especially by people looking to float their own business. Supporting SMEs is important for the economy and thankfully most financial institutions in India are cognizant of this fact. It’s common knowledge that all business organisations regardless of their size would need financing at some point of time. That’s because having an uninterrupted flow of cash is essential to keep any business running. Having said that, here are some details regarding the topic at hand:
A short-term business loan – as the name suggests – comes with a short repayment period of one year or less. Some short-term business loans can be repaid in just 90 to 120 days; making them extremely convenient. Know that some lenders will charge an early repayment penalty if you decide on closing your loan quickly. An administration fee will also be charged to cover the cost of setting up your loan.
Many would ask if short-term loans are a great option and the answer is a resounding yes! It’s a low-risk credit, hence, is perfect for start-ups who can’t afford to make any long-term financial commitments. However, this variant of loan is not recommended for business acquisitions as the amount would be insufficient. Instead, short-term loans are perfect for companies wanting to purchase new equipment or to cover expansion costs.
All types of businesses are increasingly opting for this loan to cover holiday season inventory costs. SMEs can also use the money obtained from this loan to pay their employees when finances are tight. Some business owners might use this money to raise capital or pay suppliers. Customers not making timely payments can pose an additional burden on your pocket. During such times, your short-term business loan will provide the much-needed financial respite.
Short-term loan eligibility criteria
Applicants will be required to submit financial documents along with a comprehensive business plan to the lender. Eligibility criteria will differ across lenders, but generally, you would be required to fulfil the following requirements and submit the following proofs:
- Your personal credit score should be between 620-700 or more
- Records of your previous loan repayments
- Payment history to your suppliers
- Documents related to cash flow history for the previous 3-5 years
- Financial projections for the next 3-5 years
- A concrete business plan
- Past income statements for the period as specified by your lender
Short-term business loans for start-ups
New businesses will be required to provide extensive documentation as demanded by their financiers. This could include projected cash flow statements for the next 5 years. Sufficient evidence needs to be provided regarding the sources of revenue and the repayment capacity of the applicant. You might also be required to provide personal guarantee for your short-term loan.
Read more about Long Term V/S Short Term Business Loan
Other characteristics of short-term loans
Short-term loans generally have a higher interest rate as compared to other types of financing options. The interest rate will be determined by the current state of the market and will differ across different lenders. Financers will determine your short- term loan interest rate based on the documents provided. Leverage your market knowledge to negotiate the rate of interest with your creditor.
As discussed before, short-term loans provide a plethora of advantages to most businesses across different markets. Finserv MARKETS provides its customers with flexible repayment options, which renders the process easier. So, contact us today and avail these benefits of Business loan!
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