Short and Long-Term Business Loans: Benefits of Short- and Long-term Business Funding 

One of the most difficult aspects of managing a business is getting monetary support. This is especially true when your business is slow-paced and eager to develop. All of your desires and demands must be evaluated. 

Those objectives must be categorized according to the kind of benefits that the business will receive when those needs are met. Both short-term and long-term benefits are possible. A business decides whether to raise long-term or short-term financing for its demands. 

Business finance that is available for a term of one year or less is referred to as short-term financing. A typical period is between six and twenty-four months.

Working capital is the amount of money a firm may require to run daily. It could be necessary to purchase equipment, pay suppliers, or simply cover the utility bills. When one requires money the most, cash flow isn’t always enough, so one might have to look elsewhere for finance. You may get the working capital in several different ways.

The hard work begins once you’ve picked which loan to apply for to grow your business. You must quickly catch up if you don’t fully understand the goals for your business’s financial growth and well-being before choosing a loan term that meets your needs. 

Before selecting between short- and long-term financing, you will be asked a series of questions. These may be regarding your ability to tolerate risk, as well as your current and future financial standing.

What Differentiates Long-Term Business Loans from Short-Term Business Loans

When seen from the viewpoint of a business lender, the differences between long and short-term financing are simpler to understand.

The Loan Size: The loan sum is the main factor that separates long-term and short-term finance. In most cases, it goes without saying that the higher the loan amount, the more time it takes to repay. Due to their shorter loan terms, short-term business loans allow for easier payback without accruing debt.

Collateral: The payments for a long-term business loan are spread out over a longer length of time. Additionally, these come with a higher loan amount. Lenders frequently need security, or collateral, for these types of loans as a result.

If an applicant defaults, the lender may be able to recover its losses by selling the collateral. Conversely, short-term loans frequently lack collateral and are unsecured. But in other cases, they can require some sort of indirect collateral.

Interest Rates: To make up for their brief repayment terms, short-term business loans frequently feature high interest rates. Short-term loans for businesses without collateral are typically offered at high interest rates to offset the increased risk to lenders in the event of loan failure.

Processing Time: Instant liquidity is the main factor that makes short-term business loans. Such as personal loans—appear appealing to borrowers. Minimal paperwork is required for short-term loans. After the credibility of the applicant has been thoroughly assessed and all eligibility standards have been met, long-term business loans may be granted. In the scenario of secure long-term loans, the current market value of such assets will be determined. It’s nearly impossible to get a long-term loan approved on the same day as a short-term loan.

Duration: The repayment period for short-term financial loans is normally one to three years. Long-term cash loans, on the other hand, often last between five and ten years.

Check Below the Best Term Loans 2024

• HDFC Bank Business Loan (Small Vertical)

• Minimum Turnover: No minimum criteria
• Loan Amount: ₹1 Lakh – ₹10 Lakhs
• Tenure: 12 – 36 months
• Interest Rate: 16% – 20% (Reducing)
• CIBIL Score: 700+
• Processing Fees: 1% – 2%
• Foreclosure Charges: 1% – 4%

 

• Poonawalla Finance Business Loan (Small)

• Minimum Turnover: ₹30 Lakhs
• Loan Amount: ₹2 Lakhs – ₹10 Lakhs
• Tenure: 24 – 36 months
• Interest Rate: 18.75% – 20% (Reducing)
• CIBIL Score: 700+
• Processing Fees: 2% – 4%
• Foreclosure Charges: 3% – 4%

 

• Bajaj Finserv Business Loan (Small Segment)

• Minimum Turnover: No minimum criteria
• Loan Amount: ₹1.5 Lakhs – ₹30 Lakhs
• Tenure: 12 – 60 months
• Interest Rate: 21% – 24% (Reducing)
• CIBIL Score: 720+
• Processing Fees: 2% – 3%
• Foreclosure Charges: 4% – 5%

 

• Tata Capital Business Loan (Small Segment)

• Minimum Turnover: No minimum criteria
• Loan Amount: ₹1 Lakh – ₹15 Lakhs
• Tenure: 12 – 48 months
• Interest Rate: 22% – 25% (Reducing)
• CIBIL Score: 675+
• Processing Fees: 3% – 4%
• Foreclosure Charges: 3% – 4%

 

• Lendingkart Business Loan

• Minimum Turnover: ₹12 Lakhs
• Loan Amount: ₹1 Lakh – ₹1 Crore
• Tenure: 12 – 36 months
• Interest Rate: 21% – 40% (Reducing)
• CIBIL Score: 600+
• Processing Fees: 3% – 4%
• Foreclosure Charges: 3% – 4%

 

• InCred Business Loan

• Minimum Turnover: No minimum criteria
• Loan Amount: ₹50k – ₹10 Lakhs
• Tenure: 12 – 60 months
• Interest Rate: 16% – 33% (Reducing)
• CIBIL Score: 650+
• Processing Fees: 2% – 5%
• Foreclosure Charges: 1% – 4%

 

• Flexi Business Loan

• Minimum Turnover: ₹20 Lakhs
• Loan Amount: ₹1 Lakh – ₹25 Lakhs
• Tenure: 12 – 36 months
• Interest Rate: 18% – 30% (Reducing)
• CIBIL Score: 700+
• Processing Fees: 3% – 4%
• Foreclosure Charges: 4% – 5%

 

• Indifi Unsecured Business Loan

• Minimum Turnover: ₹20 Lakhs
• Loan Amount: ₹1 Lakh – ₹30 Lakhs
• Tenure: 12 – 36 months
• Interest Rate: 18% – 30% (Reducing)
• CIBIL Score: 700+
• Processing Fees: 3% – 4%
• Foreclosure Charges: 4% – 5%

 

• PaySense Business Loan

• Minimum Turnover: No minimum criteria
• Loan Amount: ₹50k – ₹10 Lakhs
• Tenure: 6 – 60 months
• Interest Rate: 18% – 22% (Reducing)
• CIBIL Score: 700+
• Processing Fees: 2% – 6%
• Foreclosure Charges: 4% – 5%

 

• Ayefin Business Loan

• Minimum Turnover: ₹3 Lakhs
• Loan Amount: ₹5k – ₹3.5 Lakhs
• Tenure: 12 – 30 months
• Interest Rate: 28% – 29.5% (Reducing)
• CIBIL Score: 650+
• Processing Fees: 2.5% – 3%
• Foreclosure Charges: 4% – 5%

 

• Faircent Eazzy Loan

• Minimum Turnover: No minimum criteria
• Loan Amount: ₹50k – ₹1.5 Lakhs
• Tenure: 12 – 36 months
• Interest Rate: 25% – 30% (Reducing)
• CIBIL Score: 630+
• Processing Fees: 7% – 8%
• Foreclosure Charges: ₹500

 

• Money View Business Loan

• Minimum Turnover: No minimum criteria
• Loan Amount: ₹5k – ₹5 Lakhs
• Tenure: 3 – 60 months
• Interest Rate: 16% – 36% (Reducing)
• CIBIL Score: 650+
• Processing Fees: 2% – 5%
• Foreclosure Charges: 2% – 5%

 

• Hero Fincorp Business Loan (Small Vertical)

• Minimum Turnover: No minimum criteria
• Loan Amount: ₹1 Lakh – ₹5 Lakhs
• Tenure: 12 – 60 months
• Interest Rate: 19% – 27% (Reducing)
• CIBIL Score: 630+
• Processing Fees: 2% – 4%
• Foreclosure Charges: 4% – 5%

 

• Faircent Business Loan

• Minimum Turnover: ₹10 Lakhs
• Loan Amount: ₹50k – ₹10 Lakhs
• Tenure: 6 – 36 months
• Interest Rate: 25% – 30% (Reducing)
• CIBIL Score: 550+
• Processing Fees: 7% – 9%
• Foreclosure Charges: ₹500 + GST

 

• Ambit Finance Business Loan

• Minimum Turnover: ₹50 Lakhs
• Loan Amount: ₹2 Lakhs – ₹50 Lakhs
• Tenure: 12 – 36 months
• Interest Rate: 20% – 28% (Reducing)
• CIBIL Score: 675+
• Processing Fees: 3% – 3.5%
• Foreclosure Charges: 4% – 5%

 

• Choice Finserv Business Loan

• Minimum Turnover: No minimum criteria
• Loan Amount: ₹1 Lakh – ₹7.5 Lakhs
• Tenure: 12 – 48 months
• Interest Rate: 22% – 26% (Reducing)
• CIBIL Score: 700+
• Processing Fees: 2% – 3%
• Foreclosure Charges: 4% – 5%

 

• Get Vantage Business Loan

• Minimum Turnover: ₹1.2 Crores
• Loan Amount: ₹5 Lakhs – ₹10 Crores
• Tenure: 12 – 15 months
• Interest Rate: 16% – 20% (Reducing)
• CIBIL Score: 700+
• Processing Fees: 5% – 8%
• Foreclosure Charges: 1% – 4%

 

• Recur Club Business Loan

• Minimum Turnover: ₹1 Crore
• Loan Amount: ₹10 Lakhs – ₹10 Crores
• Tenure: 12 – 24 months
• Interest Rate: 16% – 20% (Reducing)
• CIBIL Score: 650+
• Processing Fees: 2% – 3%
• Foreclosure Charges: 2% – 5%

 

• Maxemo Business Loan

• Minimum Turnover: ₹40 Lakhs
• Loan Amount: ₹5 Lakhs – ₹30 Lakhs
• Tenure: 12 – 24 months
• Interest Rate: 22% – 30% (Reducing)
• CIBIL Score: 650+
• Processing Fees: 4% – 8%
• Foreclosure Charges: 2% – 5%
• Arka Business Loan

• Minimum Turnover: ₹1 Crore
• Loan Amount: ₹1 Lakh – ₹30 Lakhs
• Tenure: 12 – 36 months
• Interest Rate: 18% – 20% (Reducing)
• CIBIL Score: 700+

Below is an Overview of the Benefits and Drawbacks of Taking out Short-term Loans.

Benefits and Drawbacks of Short-Term Business Loans 

Benefits	Drawbacks
Applying for a short-term business loan is simple, and most applications are accepted in less than 48 hours.  Short-term loans can be tailored to the borrower’s ease of repayment.  The borrower’s ability to repay the loan will determine the EMI amount, time duration, and interest rate.  Tax deductions apply to interest paid on short-term borrowing.  To apply for this type of loan, you don’t need any collateral.	Compared to long-term loans, these loans carry a higher interest rate because they are unsecured.  Early loan repayment may be subject to early repayment penalties.  Borrowers may have a likelihood of becoming reliant on borrowing and submit several applications.

As a company owner, you’re constantly searching for methods to expand your enterprise. Taking out a long-term loan is one option to accomplish this. 

The Following are Some Advantages and Disadvantages of Taking Out a Long-Term Loan: 

Benefits

Drawbacks

The fact that you can utilize the money for whatever is one of the best aspects of long-term loans. It might be utilized to broaden your facilities, buy new equipment, or even just pay for unforeseen bills. This flexibility comes in quite handy when you’re looking to expand your company. The set payments that come with a long-term loan are an additional advantage. This is advantageous as it enables you to create a budget. You will be able to budget your costs since you will know just how much you must pay every month. You can be eligible for a long-term loan with a lower interest rate if your credit score is high. Over the loan’s term, this may save you a significant amount of money. Getting a long-term loan will also help you raise your credit rating. This is so that your credit score can rise as a result of timely loan repayment. This can lower the loan amount even more and enable you to make financial savings.

You might need to provide collateral if you’re taking out a long-term loan. This implies that the lender may seize your collateral to cover their financial losses if you default on the loan’s repayment.    The possibility of origination costs is another drawback with long-term loans. These costs can mount up and result in an increased loan cost over what it would have been otherwise.    Early repayment penalties can apply if you choose to pay off the debt earlier. The total cost of the loan may increase as a result of these penalties. You might not be able to get a longer-term loan with an interest rate that’s lower if you have poor credit. This implies that throughout the loan, you will pay higher interest. It could be challenging to obtain approval for a long-term loan if your credit is bad. This is because lenders are often more unwilling to provide bad credit borrowers with money.

Which Business Loan (Short Term vs. Long Term Financing) is Good for You? 

Plan how you want to use the loan money and decide if you’ll benefit more from a short- or long-term business loan. A short-term loan will be required to achieve a particular, time-bound goal. A longer-term loan will be needed to help achieve a more demanding and long-term goal. In addition, if you can quickly offer an asset as collateral for the money you’re borrowing, you should think about collateral.

How Will One Choose Between Long- and Short-Term Business Loans?

 

• Demands for Cash Flow
  

Timing is important when deciding how long your small-term business loan will take to repay. You need money, at the very least, to cover the loan balance when it’s due. A poor deadline, meanwhile, can still put a lot of financial strain on your company. 

Think about the following situation: You’ll have very little money left over after paying your bill on time. You’ll likely have trouble covering other bills or be forced to put off making further investments. If you make additional late payments, you face an increased risk of paying late fees or obtaining a bad credit score, which would further damage the financial standing of your business.

Make accurate projections of the cash flow needs of your business to avoid this. As you’re at it, consider any additional expenses you might have. These could affect your ability to pay back your loan when the due date approaches.

2. Look into your Current and Prospective Financial Circumstances
   

If you’re reviewing your options, it can make sense to take out a short-term loan so you can conduct the required research to decide which option is best. You should give yourself extra time, though, if you’re just getting started and your short-term cash flow is uncertain. 

In this case, a long-term business loan could seem more sensible. It is not preferable to have a long-term financial obligation floating over your head in the event that your business fails. Therefore, a short-term business loan would be a better option to begin with. 

3. Evaluate your Capacity to Take Risks
   

Every entrepreneur has to take on the risk of becoming successful. However, that risk varies depending on a number of factors.

It’s critical to keep in mind that there is no “correct” response when determining how much risk you may tolerate. In addition, there are context-specific risks to consider when deciding between short- and long-term financing.

A long-term business loan indeed carries greater risk than a short-term loan due to the longer repayment period. All other factors, however, are rarely comparable in reality.

Because a short-term loan needs to be returned more quickly than a long-term loan, you will typically have to make larger installment payments. From this point of view, you might think that the higher payments are going to put you in trouble or cause you to run into financial difficulties. Thus, you can say a short-term loan is a risky option for you.

Bottom Line

Lastly, you should determine which loan option has the most chance of being approved. For no other reason than their lack of expertise, young businesses frequently struggle to secure long-term financing. Short-term borrowing can be your sole option in such a situation.

Business loans frequently act as an accelerator for a company’s growth. You can provide your business with workspace, supplies, and other necessities with the help of financial assistance. Each business has the ability to, at some point, gain many advantages from a business loan. Here’s where business loans are useful. With the help of an MSME business loan, you can expand your business by acquiring new products, modern equipment, and more cash flow for upcoming projects.