Adequate cash flow is the primary requirement of every business. Although you may be circulating the profits on a regular basis, there are times when you may require huge funds for buying new assets or geographical expansion. During such times, businessmen are eligible to avail business loan from either banks or financial companies. There are two types of business loans:
i) Short-Term Business Loans
ii) Long-Term Business Loans
Both short-term business loans and long-term business loans are different from one another in various aspects such as loan amount, tenor, processing of loan and disbursal time. You can choose the most suitable one depending upon your urgency of funds and other requirements.
Short-Term Business Loans
Short-term business loans essentially finance your quick cash needs or temporary working capital like employees’ salaries or re-stocking. These loans are provided for a tenor of less than a year or for one to three years (depending upon the lender). These one-time loans are usually availed when you are not able to obtain credit from a bank or a financial company for a longer tenor.
Interest Rate for Short-Term Loans
The interest of short-term business loan varies according to the tenor as well as the lender. These loans have extremely high interest rates (up to 18% annually) as the borrowers avail the loan for a short duration. Short-term business loans can be divided into payday loans and personal loans.
- Short-term business loans can be applied for as an individual or as a business, without collateral.
- You can avail the online facility to apply for this loan, with minimum paperwork and hassle-free procedure.
- You may only require to submit identity proof and income proof for validation.
- Some banks or financial companies approve the loan application based on the credit history. However, a few of them may even give the loan to even those with a bad credit history.
- Depending upon the company policy, you can apply, get the loan approved and avail the loan amount within a day’s time.
- Short-term business loans can be secured or unsecured, depending upon the lender.
- The repayment period of the loan can vary from lender to lender; it can range from 60 days to four months and go up to 12 months.
Long-Term Business Loans validation
The most popular type of credit in the financial industry, long-term loans are usually availed to meet significant financial needs while buying assets/machinery for business, setting up a factory or geographical expansion. These loans can be paid off over a period, which is between 3 to 10 years. However, the tenor can extend up to 20 years depending upon the lender as well as the purpose of the loan.
Interest Rate for Long-term Loans
The interest rate for long-term business loans can be between 11% and 20% annually, depending upon the lender you choose.
- Long-term business loans offer bigger amount compared to short-term loans
- The tenor of these loans can be anywhere between 3 to 10 years.
- The interest rates are not as high as short-term business loans because of the long duration. The long tenor helps to spread the EMI as per your convenience and financial comfort.
- If you are availing a long-term loan, you need to offer collateral in the form of security/guarantee to your lender. Collateral can be a property you own, asset, jewelry, life insurance policy, etc.
- The procedure of long-term loans may take longer compared to short-term loans. It may take a few days or weeks due to the high loan amount.
- You will have to submit various documents for validation like bank statements, company balance sheet, IT returns, property documents, certificate of business existence, etc.
You can gauge the differences by comparing the two loans and pick the best suitable for you. Some financial companies offers business finance up to Rs.30 lakh at a highly competitive rate of interest. These loans can be repaid in easy EMIs that can be repaid within a period of 12 to 60 months. You can avail these loans in a hassle-free way by filling in an easy application form and submitting only 2 documents. With pre-approved offers, you can avail the money in just 1 step verification.