What Is A Short Term Loan and What Are Its Benefits

Short term loans have always been a very common source of raising funds for business organizations. In case of acquiring long-term loans, there are numerous criteria which needs to be fulfilled and even then, at times, it becomes difficult to get the loan. However, in case of short-term loans, which need to be repaid within one year and in some cases a bit longer than that, they’re easy to get hold of. Short term loans are usually smaller in terms of amount and interest rates are manageable. Business organizations need short-term loans to meet their operational expenses. Earlier, acquiring short-term loans wasn’t easy. However, these days’ banks and other financial institutions are prepared to give these loans if certain criteria are met.

The companies applying for short term loans for the first time needs to have enough fixed assets to cover for the loans taken. However, for those who take loans on a regular basis, for them their previous records in terms of repayment of loan will be taken into consideration by the financial institutions. Short-term loans have numerous benefits to offer. They not only help meet operational and day-to-day expenses, but at the same time a very useful to invest in bigger projects.

What are the collateral considerations?

Having a high value of collateral is not important for acquiring short-term loans, which is one of the important factors in case of long-term loans. The reason why high value collaterals are not important in case of short-term loans is because the amount is considerably lesser. Usually, most of the short term loans are unsecured in nature. In certain cases, however, collaterals are required; however, the value is very negligible. In case of short-term loans, collaterals are usually asked from the ones who are applying for it for the first time. To make sure, that the company keeps on acquiring short-term loans a regular basis, it is very important for them to make sure that they repay the loan on time and pay the right rate of interest.

The rate of interest

When it comes to the rate of interest for short-term loans, it varies from time to time. It mostly depends on the fiscal policy of the government that determines the rate of interest. Usually, when it comes to short-term loans, the rate of interest is much lower compared to the long-term ones. One of the reasons why the rate of interest charged is relatively lower in case of short term loans is because the loan amount is not very high.

What are the benefits of short term loans?

There is wide range of different types of benefits to short term loans must offer. Here are some of them

  • These loans are easily available and require no major collateral. As a result, any business, irrespective of size and value of assets can acquire these loans
  • In case of short-term loans, the rate of interest is relatively lesser. As a result, even the smallest business groups with very small volume of assets and fixed capital can acquire these loans.
  • The short term loans are very useful when it comes to meeting the operational expenses. Companies tend to prefer meeting these expenses by using money acquired from loan on short-term so that they can be repaid easily.

These days, short term loans have become indispensable for any business organization. They not only help to meet the day-to-day expenditure, but at the same time add to the working capital of the company. Besides banks and financial institutions, short term loans can also be acquired from private money lenders.