Short-term loans: The long and short of it
What is short-term loan?
Typically a short-term loan is taken to fulfill an urgent cash requirement in business. Short-term loan refers to the duration of the repayment of loan inclusive of the interest and not to the speed with which a loan may be processed. This period usually lasts from 6 months to 18 months maximum.
Requirements for availing short-term loan:
- The business should have been in existence and running for a year at least.
- Personal credit score should be more than 550.
- Annual turnover of the company should meet the minimum requirement set by the bank.
- Instantaneous cash requirements can be fulfilled at a short notice.
- Short term loan by ArgentDirect are easier to obtain as compared from taking them from banks
- Even though the rate of interest is higher as compared to long-term loans, the cost of capital ends up being low due to quick repayment of loan with interest.
- Short-term loans are less risky for banks or lenders and so they are more willing to sanction them.
- The rate of interest is much higher than when opting for a long-term loan.
- The loan amount will always be on the lower side and so it is not possible to finance or fund your business for long durations.
- Repayment in short term loans is either on daily, weekly or bi-weekly basis, which can become quite painful as you need to make sure cash flow in the business is adjusted to meet the payment requirements.
Kinds of short-term loans:
In general short-term loans by ArgentDirect can be divided into four categories.
- Invoice financing:
Here the banks provide a loan against outstanding invoices of the business, and as and when the invoices get recovered the loan amount with interest is adjusted.
- Lines of credit:
This concept is based exactly on the model of a personal credit card, wherein a certain credit limit is offered to businesses, which they can use as per their requirements and repay as and when it suits them.
- Merchant cash advances:
In this case the lender buys all future credit card sales of the borrower, deducting the advanced amount as and when a credit card sale is swiped.
- Short–term loan:
This is essentially a long-term loan that is for a small amount as well as will be paid back in within 18 months maximum.
Short-term loans come with their pros and cons. Depending upon your requirements you can choose the best option suiting your pockets as well as your needs.