Important Features of a Short Term Loan

If you are looking to get into the world of business then, you must have a basic knowledge of loans. Now there are various types of loans out there which you can choose for your business. One such loan which is pretty popular in the financial market is undoubtedly short term loans. As the name suggests these loans are generally taken for a short period of time, primarily to meet the demands of the day to day business functioning. This is the reason they are usually versatile in nature and can be the perfect weapon to tackle unforeseen financial needs, which in turn helps entrepreneurs to manage the cash flow of the business better. 

Short Term Loan

Features of a short term loan:

• Duration: The first thing which separates the short term loan from others is the period for which it is taken. You will see that more often than not these loans are for a period not exceeding 1 year and sometimes even as short as 90-120 days. One thing that you have to remember here that this loan is to be paid within this period of time and the final payment will include the principal and interest.
• The payment period: Unlike many loans, which usually have revolving payment period, short loans are designed to have a fixed payment period. This helps the lender to get back the payment after a particular time span, while the borrower is aware of when he or she needs to return such loan.
• The cash flow: This is a loan which both small and big companies take to make sure that they have the availability of the cash or liquidity at hand. It plays an integral part in taking care of any issue related to the working capital of the company. These loans also help to pay off the creditors and other expenses like payment if taxes, a situation which is perfectly possible in any business.
• Agility: The reason entrepreneurs are so attracted to take short term loans is because these loans can be acquired much faster as compared to long term or term loans. The procedure of getting a long term loan is a lot more thorough and tedious as the lender will try to make sure that his investment is safe. But since these loans are paid in a shorter span of time, lenders are relatively relaxed while assessing the possibility of bad debt which accelerates the sanctioning of the loan.
• Collateral: One of the prominent features of any loan is the collateral but this particular feature hardly has any effect on short term loan. Here, you will find that most of the lenders don’t even ask for any security for the loan.

Short Term Loan

Why short term loan?

We have earlier mentioned that short term loans basically help to keep the business on the right track by looking after the working capital of the company. Here the loan amount is usually smaller, which means lesser burden on the shoulder of the borrower. These loans are a great option for financing of small, existing businesses as well as for start ups. For example, if you have a seasonal business then you can simply take this loan for a couple of month and repay the lender after that period. Another reason entrepreneur go after this loan is because here you can repay the loan back in any which way possible, whether it’s in the form of monthly installment or sometimes even daily installment.

This flexibility in repayment is something which smaller and budding business need. Moreover, short term loans are a great way of financing smaller debts, something which is employed judiciously by larger business. In addition, these loans are also used as funds, which can be used for expansion of an existing business, which is definite advantage for people looking to expand their business.