A short term loan is a loan that is scheduled to be paid in less than a year. A short-term loan is a type of loan that is obtained to support a temporary personal or business capital needs as it involves a borrowed capital amount and interest that needs to be returned at a given due date within a year. It is an expensive option for small businesses or start-ups that are not yet eligible for a credit line from the bank. This loan involves lower borrowed amounts, not just for small businesses but also for individuals who find themselves in a sudden financial crisis such as not enough money this holiday season opt for Christmas loans on credit to help you enjoy your Christmas without any hassle.
Types of short term loans
Merchant cash advance
This type of loan is actually cashed advanced but operates as a loan. The lender loans the amount needed the borrower then repays by allowing access to his credit facilities, each time a purchase is made the customer of the borrower pays a certain percentage of the sale is taken by the lender.
Lines of credit
Lines of credit is like using a business card, where a credit limit is set, and the business is able to make monthly instalments against the amount that has been borrowed due to which monthly payments may vary. The main advantage of lines of credit over a business credit card is that it typically charges lower Annual Percentage Rates (APR)
Payday loans are relatively easier to obtain, but the only drawback to them is that the entire loan amount and the interest has to be paid in one lump sum when the payday arrives
Online or instalment loans
A relatively easy loan where everything is done online within minutes and then the money is wired to the borrowers’ bank account.
Advantages of short term loans
Some advantages you may receive in short term loans are
- Shorter time for incurring interest as the loan is expected to be paid within a year and there are lower total interest payments and the interest paid on the short term is less significant
- Quick funding time as the loan is less risky as the time it takes for the lender underwriting to process the loan is shorter, and the borrower can obtain the funds quickly.
- Easier to acquire as the requirements are easier to meet and a lifesaver for small businesses who suffer from lesser credit score
Short term loans are very useful for both businesses and individuals as they offer a good way to resolve the unexpected cash flow issues and acts as a useful source of emergency funds.