A short-term loan is a type of loan that is typically repaid within a short period of time, usually within a year or less. These loans are designed to provide temporary financial relief to businesses that need quick access to funds for a short period of time. Short-term loans for businesses can come in different forms, such as cash advances and lines of credit.
In order for businesses to make the most of borrowing, it is important for them to select the appropriate lender. This requires a thorough comparison of various lenders based on a range of factors. Selecting the right lender can be beneficial for the business in the long term, as the loan terms provided will impact the overall borrowing costs.
Things to consider while choosing a short-term loan lender
When choosing a short-term loan lender, there are several factors to consider to ensure you make the best decision for your business. Here are some things to keep in mind:
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Interest rates
Look for a lender that offers competitive interest rates and fees, and make sure you understand the terms and conditions of the loan. Some lenders may have hidden fees that can add up, so it’s important to read the fine print carefully.
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Lender credibility
Before choosing to take out a loan for your business, it is important to make sure that the lender you are considering is reputable. One way to do this is by checking out the lender’s official website and looking at the “About us” section. Additionally, you can look at the lender’s social media pages and read through reviews left by previous customers. Another option is to visit a loan aggregator website to gather more information. Do your research and look for a lender with a good reputation and a proven track record of working with businesses like yours.
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Additional charges
Processing charges, administrative charges, pre-closure fee, etc., add to the loan expenditure. Hence you must consider all of these charges before availing a credit option.
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Repayment terms
Consider the repayment terms offered by different lenders, including the length of the loan and the frequency of payments. You’ll want to find a lender that offers terms that are manageable for your business’s cash flow.
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Speed of funding
If you need funds quickly, you’ll want to choose a lender that can provide the funds in a timely manner. Some lenders may offer same-day funding or other expedited options.
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Application process
In today’s digital age, businesses have more options than ever when it comes to short-term borrowing. One increasingly popular option is digital lenders, which offer a number of benefits over traditional lenders. Digital lenders use technology to streamline the borrowing process, allowing businesses to access funds more quickly and with less paperwork. They also often offer more flexible loan terms and lower interest rates, making them an attractive option for businesses in need of short-term funding. Additionally, digital lenders are often more willing to work with businesses that have less-than-perfect credit, providing access to capital for businesses that might not otherwise be able to secure financing.
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Eligibility criteria and documentation
If you’re planning to apply for a short-term business loan, it’s important to select a lender with straightforward eligibility requirements and a simple documentation process. Failure to meet the eligibility criteria or submitting inaccurate documents may result in your loan application being rejected. Each lender has its own predetermined set of eligibility criteria, so it’s important to compare them and choose the one that works best for you.
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Fine print
Each lender provides a legal document that contains the terms and details of the loan you are obtaining. It is necessary to read and understand the obligations in the fine print. You should be familiar with all the terms and conditions because the fine print is legally binding. If you have any doubts about the terms, you should contact the lender for clarification.
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Payment process
The payment process for short-term loans may vary depending on the lender and the terms of the loan agreement. In general, short-term loans are typically repaid in instalments, with the borrower making regular payments over the course of several weeks or months. Some lenders may also offer the option of a single lump sum payment at the end of the loan term.
Payments for short-term loans may be made via various methods, such as automatic bank transfers, online payments, etc. Lenders may also charge penalties or fees for late or missed payments, so it is important for you to understand the terms and conditions of loan agreements and to make payments on time to avoid additional charges.
Looking for short-term loan for your business?
Razorpay can be highly effective for businesses considering applying for a short-term loan. For instance, with its Line of Credit facility, your business can receive a total sanctioned credit amount of up to Rs. 25 lakhs, with a credit line from which you can withdraw 24*7 as per your need. You can repay & reuse the line again.
Why should you go Razorpay for Line of Credit?
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- Line set up in just 2 business days with 24*7 cash withdrawals
- No collateral. No hidden charges. No pre closure fees
- Interest rates starting at 1.5% per month: Pay only on what you use & save on interest by repaying early. For example: If you withdraw Rs. 1 lakh at 1.5% and repay in 20 days, you pay only Rs. 1000 as interest.
- You also get 100% flexibility. You can repay in easy EMIs or manually from Line of credit dashboard; use your line again without a new application for every withdrawal.
Frequently Asked Questions:
1. What are the documents required to avail a short-term loan for business?
Here are the documents that you must possess in order to be eligible for a short-term business loan:
- Proof of identity
- Proof of address
- Documents related to income such as balance sheet, income tax returns, profit and loss statements for the last two years, etc.
- Proof of continuity of your business operations such as trade licence, sales tax certificate, etc.
2. What are the most important things that lenders look for in a borrower while disbursing a business loan?
Lenders typically consider several factors while disbursing a business loan, including the borrower’s credit score, business experience, financial history, annual revenue, debt-to-income ratio, collateral, and industry type. A strong credit score, positive business performance, and stable cash flow are typically viewed as favourable indicators of creditworthiness.
