An In-Depth Guide to Short Term Loans

One of the most preferred loan options, short term loans are loans offered for a short period of time. The loan is useful for business owners who need immediate access to funds. Here is an in-depth guide on how the loan works, who is eligible and how to use the loan.

Understanding short term loans

The loan, as the name suggests is provided for a short tenure which is less than one year. It is basically a one time loan and can be used when you do not want to take a long term loan at high interest rate. The principal amount and interest is usually paid within the short tenure and it is available to individuals and businesses.

Use of short term loans

Short term loans can be used for several purposes but they are not suitable for all business situations. They can be used for short term purposes like working capital, purchase of inventory, hiring of personnel, marketing, business expansion etc. There are no specific requirements with regard to the end-use of the funds as long as you repay the loan in due time.

Eligibility criteria

The eligibility criteria for the loan varies from one lender to another. But the general criteria is as follows:

  • You need to be an Indian national above the age of 18,
  • You need to be employed or own a business,
  • You need to have a bank account,
  • Your business should be profitable,
  • You need to have consistent income in the form of salary or business revenue.

Documents required

In order to make a loan application, you need to provide the below-mentioned documents,

  • Proof of identity,
  • Proof of address,
  • Proof of income,
  • PAN card,
  • Proof of age,
  • Proof of employment, and,
  • Passport-size photographs

Pros of short term loans

There are several benefits of a short term loan as discussed below.

Basic eligibility requirement: If you have regular flow of income, your loan application will be approved in no time. The eligibility criteria for the loan is basic and minimal.

Quick approval: Lenders only need a few documents and they make quick lending decisions. Your loan application could be approved in 24 hours and you can receive funds on the next day.

No restrictions on end-use: You can use the money for any purpose in your business and the lenders will not ask you about it. There are no restrictions and you do not need to specify the purpose of borrowing.

No need for collateral: The biggest advantage of the loan is that there is no requirement for a collateral. You do not need to hypothecate an asset with the lender to get access to funds.

Cons of short term loans

Tenure: Since the tenure is short, you will have to pay the entire loan amount and interest relatively quickly. This means you will need to arrange for funds in no time.

Fees: There are times when the processing fee for the loan is significantly high. It can make the loan expensive.

It can be noted that the pros of a short term loan clearly outweigh the cons and it is indeed an ideal borrowing solution.