Although a unique idea of a creative mind lays the foundation of any organization, starting or expanding an enterprise requires a substantial amount of money to deal with planned and unplanned expenses.
While a regular cash flow is needed to maintain the smooth functioning of processes in an enterprise at all times, an immediate need for funds could arise to fulfill additional business loan requirements such as buying an extra office space. It could also be needed to purchase the latest equipment, maintain the inventory, design a website, or take care of other operational expenses.
However, amidst the multiple borrowing options available in the market, you should be pretty careful in choosing your source to obtain the necessary funds. It should satisfy your financial needs without imposing any obligation or restriction on the organization’s workings.
One of the most efficient ways to maintain a healthy influx of capital is acquiring short-term loans for fulfilling business loan requirements from a certified financial institution. Usually anticipated to be repaid in a shorter period between three months and three years, a short-term business loan provides easy and quick access to monetary funds at a reasonable rate of interest.
Particularly helpful in the growth of an enterprise at early stages, the borrower can also use a short-term business loan to scale your company and meet the increasing customer demand without facing any financial limitations. Offered with minimal documentation and additional benefits, a short-term loan could prove to be your greatest asset in expanding your business if managed prudently.
One of the primary reasons a small business fails is a lack of adequate working capital, small enterprise business loans singapore provide the best option for your business.
Read on to know more about the pros and cons of using a short-term loan for your business.
Benefits of a short-term loan
In an unsecured form of credit, short-term loans are offered without any collateral, i.e. the borrower is not required to pledge any valuable asset against the loan amount to the lender. In such cases, if the borrower fails to submit regular loan payments on time, the lender does not have any claim over the borrower’s property, gold, etc., for liquidation purposes.
Easy to apply
Offered with minimum documentation, a short-term loan involves an easy application process. A person can fill and submit the application form online along with the soft copy of relevant documents.
While most business loans have a stringent eligibility criterion, to obtain a short-term unsecured loan, one must fulfill the following eligibility conditions:
- Individuals should be engaged in the current business for at least three years with a total of five years of business experience.
- The candidate should be at least 22 years of age while applying for the loan and a maximum of 60 years of age at the time of loan maturity.
- Enterprises should have a minimum turnover of 10 Lakhs and should generate profits for the past two years.
Upon an instant acceptance and fast processing, the short-term loan request is quickly approved by the lender, and the required money is deposited into the borrower’s account within a few days.
Convenient to use
The loan amount is flexible in terms of usage, and the borrower can decide when, where, and how to spend the money. Whether it is for upgrading the machinery, dealing with emergency losses, paying incentives to employees, advertising your product, or increasing inventory to keep up with the seasonal trends, a short-term loan is an ideal solution to scale up your businesses.
Usually repayable up to 3 years, the short-term loan amount has a lower risk of default because the longer you carry on debt, the more the chances of failing to make timely monthly payments. Hence, one can plan their finances for the short duration of the loan and live a stress-free life.
Drawbacks of a short-term loan
Due to the short repayment period, you should have a ready-to-implement business plan which can earn you sufficient funds to pay the installments on time. Hence, one should not take a short-term loan if the cash flow is not steady to repay the amount quickly because it may involve daily and weekly payments instead of regular EMIs.
Due to this loan’s flexible and convenient nature, one could be tempted to apply for such loans once in a while upon facing a shortage of funds. Such decisions could take a toll on your finances and indulge you in a vicious borrowing cycle, which can be hard to avoid.
Higher interest rate
While the short-term loan is offered without any collateral or security, the lender usually charges a higher interest rate as it comes with the risk of non-payment. Hence, one should be ready to close the business loan along with the accrued interest at the earliest to reduce the overall loan amount.
While short-term loans could boost your credit rating in the long run, one should be confident enough to risk limiting their access to a larger business loan upon signing up for a short-term loan to fulfill urgent financial needs.