A business always needs to get short term loan from somewhere. It might be either due to the need to cover the short-term cash crunch or to meet the long-term business plans. In one way or another business needs a loan and as an entrepreneur, one must be aware of all the facts about short term business loans. Well, all the things needed for the same has been mentioned below.
What is Short Term Business Loans?
Short Term Business Loans are the one where you get the loan to meet the cash crunch that you face with the working capital. Basically, all the short terms loans are required to be paid within a year or so but some of them last for more than a year. However, there are certain loans where you can take another loan up to a permissible limit.
It is the decision of the entrepreneur to take the loan or not. Therefore, he must have the idea of when the cash crunch problem is becoming serious and how immediate actions are required for the same. However, on the other hand, he must be well aware of the fact that short term loans come with a higher rate of interest and it brings in quick cash with low `formalities.
Types of Short-Term Loans
Whether it is a startup or well grown business, all should know about the different types of short-term business loans that they can apply for. Each one comes in with a different feature and term with its benefit and drawback along with it.
Business Line of Credit
One of the major contributions to the short-term business loans that come in is of the line of credit that a company has to meet the short-term deficiency of working capital. However, finding a good line of credit for a new startup can turn up to be difficult. The interest rate of the line of credit can start from 8% and go high to 80%.
Term Loans
Term Loans are similar to the traditional loans that we get at any bank near our business. Well, the major chunk of difference is the repayment period. It completely varies and finding a shorter period of repayment is the most difficult thing in the market. In order to cover the same interest rate ranges from 8% to 99% and qualifying for the lowest is quite difficult for any businessman.
Vendors Credit
One of the oldest forms of credit is the vendor’s credit. It comes in when the vendor willingly to grow the business along with his client provides credit by not collecting the amount of the product right at that point of time. Instead of that, they provide a 1 month of the gestation period for the client to pay the respective amount. Bills of Credit are issued for the same which can be discounted by the vendor at any bank if the vendor needs the cash on an urgent basis. However, shall things go haywire, strict legal actions can be taken on the part of both the vendor and the businessman.
There are more to short terms business loans like invoice financing, merchant cash advances, business credit cards and other companies which adds up to the list to make things better for the businessman. A fixed-rate of interest is applicable on this particular loan and need to be paid within the fixed period of time.
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