A short term business loan is generally defined as a bridge loan. A type of financing tool that is designed to address the capital requirements of small businesses for a shorter duration of time. The repayment duration, when compared to traditional loans, is much shorter. Short term business loans are generally useful and advisable for startups. Also, these kinds of loans can be obtained either as a secured or an unsecured facility.Â
Pros:
Smooth Process – Small business loans, when compared to traditional loans, are much easier to apply for. These kinds of loans do not require the individual to schedule meetings with the lender or do massive paperwork as the application process is online-based. This also saves much of the time, as the application process can be completed from the individual’s home in as little time as possible.
Quick Funding – The approval for the short term unsecured loans can be done within 48 hours. On the other hand, traditional loans take up a lot of time to get approved and release their funding, while short term business loans offer much quicker access to the capital and that too within hours. Therefore, short term business loans are a good choice for businesses that require immediate capital.
Easy to Qualify – One of the advantages of short term business loans is the fact that it is much easier to qualify for as compared to other traditional loans. Relaxed norms are followed by these loans to assess the individual’s business and personal credibility.
Handles seasonal uncertainties – Irrespective of the industry the individual’s business belongs to – it is very much probable to encounter fluctuations in demand. Seasonality can affect an individual’s business drastically. If the proper injection of capital is not done, these instances can lead to bringing down the earnings of the individual. Thus, short term business loans come in handy to cater to such seasonal uncertainties. They help the individual to tide over the seasonal dips by providing quick access to the capital.
Cons:
High-Interest Rate – Since the loan duration is short, short term business loans attract higher interest charges and rates. If these loans are compared to other loans, then these loans can make the individual pay significantly more in exchange for the same financed account. The quick disbursal, less stringent ability, and easy processing come at the cost of a higher rate of interest on the short term business loan.
Require frequent payments – These loans require the individual to make frequent payments – another limitation of short term business loans. Conversely, traditional loans require the individual to pay monthly payments, while short term business loans require daily or weekly payments. The risk of being debt trapped can be posed because of this hasty payment, especially if the individual’s business is susceptible to cash flow fluctuations. Moreover, such kinds of loans can leave the individual burdened with the risk of default and penalties.
Potential to debt – The short term business loans are designed in such a way as to fulfill emergency monetary requirements. Usually, higher EMIs are offered by these loans that are needed to be paid within the required short time limit. If the individual fails to do so, then his/her business’s growth can be jeopardized and put him/her in a debt trap, eventually leading to the depletion of resources in paying back debts rather than investing in growth.
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Like every coin has two sides, short term business loans also come with pros and cons. These loans cannot prove to be a perfect decision for every business owner. Before you come to a decision, you should analyze and consider all aspects of the business. There might be times when the benefits can outweigh the limitations, but the individual needs to understand that the loan facility fits his/her business scenario or not.
