Everything You Need to Know About Short Term Business Loans

Everything You Need to Know About Short Term Business Loans

Are you looking for quick finance to cover a business expense? If so, consider availing of a short-term business loan. This loan type is easy to obtain and requires minimal documentation from your end. You also incur interest for a shorter tenure.


Types of short-term loans in India


Before applying for a business loan for a short duration, you must know their types to make an informed choice. Consult the list below for further details:


Term loan


Lenders extend a secured or unsecured term loan depending on your business’s credit history with them. The tenure for this loan type typically ranges between 1 and 5 years in case it is unsecured. 


Should you get a secured term loan, you can choose a longer tenure that goes up to 15 to 20 years. Businesses usually avail of this type of loan to cover their capital expenditure. And the amount is disbursed in a lump sum only.


Loan against property for SME


Many lenders offer short-term business finance of up to Rs. 50 lakhs to SMEs against a property at affordable business loan interest rates. A borrower pledges their residential or commercial premises and gets up to 70% of its value as a loan. 


However, the title of the property to be pledged must be free from any disputes and litigation. The tenure for such a loan is generally up to 15 to 20 years, depending on your lender.


Equipment loan


If you run a manufacturing unit, a business or short-term machinery loan can prove to be incredibly useful. This type of finance is doled out fast, making sure you don’t have to stall your equipment purchase. 


An equipment loan is unique because the machinery you acquire and use with said funds is considered collateral by your lending institution. Occasionally, your lender may also ask for an additional guarantee.


Working capital loan


Are you falling short on day-to-day cash to operate your business? You can avail of a working capital loan to generate a balance in your cash flow. You can also get this type of short-term business finance during off-peak seasons. 


A working capital loan is especially helpful for wholesalers, export-import traders, retailers, and other similar service providers. 


Overdraft facility 


An overdraft facility is a type of short-term loan usually provided against your term deposits with the lender. Before extending this facility, your lender analyses your financial history with them. Moreover, the overdraft limit comes pre-approved, wherein you can withdraw full or partial amounts from the pool as per your business needs.


You only need to pay interest on the sum withdrawn from the facility instead of the total borrowed amount. This way, you can use the overdraft pool at a favourable business loan interest rate and finance various business expenses lucratively.


The bottom line


These are the top types of short-term business loans available to countless Indian companies. If you are gearing up to avail of one, make sure to compare the business loan eligibility criteria and repayment terms offered by different lenders before applying.




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