Ever since India has started to climb the ladder of the startup age, there has been an exponential rise in the emergence of small scale startups. However, without adequate finances many of them failed at the initial stages of their journey. Fortunately, today we have a lot of financing avenues that can cater your business’ long-term as well as short-term financial requirements. For all those who have long-term fund requirements can apply for regular business loan and those who have short-term fund requirements can avail short-term business loans. In this post, we are going to learn more about short-term business loans.
What is Short-term Business Loan?
As the name suggests, Short-term Business Loan is a loan option to cater to various short-term financial requirements of a business. The loan can be availed to cover any business expenditure such as strengthening the working capital, covering operational cost, expanding the business, etc. Since the loan is short-term, it usually needs to be repaid in a year in monthly instalments. These loans can also come in useful in case you fail to avail a long-term credit from a lending institution. Though these loans are usually unsecured (does not require an asset as collateral) but depending on your credit profile your lender might ask you to secure it with collateral. While previously acquiring this loan entailed developing a good working relationship with the bank, the government has now taken interest as well. As a result, several schemes have come up to provide short term business loans to startup aspirants on lenient terms.
Short-term Business Loan Features and Benefits
The features and benefits of short-term business loans vary from one lender to another; however some of the common points are given as below:
- Anyone can apply: One can apply for this loan as an individual or as a business.
- Minimal paperwork: The lack of scrutiny in acquiring short-term loans translates directly to less requirement of paperwork. As a result, this can be a completely digital process.
- Quick access to funds: The minimal inclusion of paperwork due to digitisation results in faster access to short-term loans.
- Fast loan approval: Based on a scheme’s or the company’s policy, the time taken for the loan approval can be less than a minute.
- Secured and unsecured loan options: Depending upon the lender, the applicant have both secured and unsecured options on these loans.
- Need specific loans: Short-term business needs can be tended through these types of loans.
- Short repayment period: The repayment of short-term loans usually extends up to 12 months.
Also Read: Types of Business Loans in India
Documents Required for Short Term Loans
The document requirement for short-term business loans vary from one lender to another; however some of the common documents are given as below:
- The PAN card of an individual or the business
- Bank statements of the last six months.
- A copy of address Proof such as telephone bill, electricity bill, bank statements, voter ID card, Aadhaar card, passport or driving license.
- A copy of identity proof such as voter ID card, Aadhaar card, driving license and passport.
- A copy of age proof such as 10th Grade Education Board issued the certificate.
- Sole Proprietorship Declaration if the business entity is a Sole Proprietorship or Partnership deed is the business entity is a partnership firm.
- If the business entity is a company, then the Certification of Incorporation or COI is required.
- True Memorandum of Association and Articles of Association of the company.
How to obtain short term Business Loans?
The process to avail short-term business loans involves the following:
- Check if you are eligible for the loans
- Prepare the documents necessary to avail the loans
- Apply for the loan by visiting your nearest bank branch or through the bank’s online portal.
Things to keep in mind
While and before you are working towards acquiring short-term business finance, you need to keep a few things in mind. These are:
- Short-term loans are granted for a short term only.
- Short-term loans are flexible, which implies that you can acquire it for multiple reasons concerning your business.
- Always check if you are eligible for small business loan schemes.
- Short-term loans generally extend to 12 months.
Frequently Asked Questions on Short-term Business Loans
Q1. Why should I take a short-term business loan?
In the initial stage of your business’ growth phase, you might find yourself in need of funds. While most of it is manageable through personal capital but you can’t wait around for finances. Short-term business loans ensure that critical matters are met properly.
Q2. Can a credit limit for a business loan increase?
Yes, the credit limit for a business loan can be increased. However, it is subjective to the criteria of the scheme you have chosen and the bank you have chosen to take the loan from.
Q3. What are the benefits of Short-Term Business loans?
The benefits of Short-term business loans are as follows:
- The loans are flexible
- Under the government scheme, they don’t require any collateral
- These loans can be approved pretty fast.
Q4. How long do I have to repay a short-term business loan?
A short-term business loan is usually repaid within one year.
Q5. How do I check my eligibility for the loans?
You can check the eligibility for the loans at the bank websites.
Q6. Can I get a short-term business loan to get new equipment for my factory?
Yes, you can take a short-term business loan to get new equipment for your factory.