Things you need to know about short-term business loan
MSME is an important pillar of the Indian economy. This sector is continuously contributing to the growth and development of the Indian economy. More than 6.3 crores of micro, small and medium enterprises (MSMEs) operate in India and contribute to 30% of our country’s GDP. When it comes to sustainability, these businesses need adequate financial support. There exists a significant gap between investment opportunities/credit facilities and the financial requirements of these emerging business enterprises. This gap has been successfully bridged by the ecosystem of the banks. Banks are providing financial assistance to these business through business loans, especially short-term loans.
Short-Term Business Loans
Sometimes the business might require small funding for the short term. In such situations, the funding requirements are met through short-term business loans under which banks offer funding to the organizations in a swift process, and the business has to repay the loan in a short time, usually within a year. Thus an easy business loan can be the answer to the business owner’s funding needs for a short time.
Short-term loans can are considered to be good alternatives for situations when the business fail to acquire long-term loans. There are multiple benefits and features that are associated with the Short term business loans, depending upon the policies of the bank that is lending the loan.
Applicants must always evaluate the financial commitment and their repayment capability and then proceed to decide the loan amount to be applied for. Although the amount sanctioned is solely at the discretion of the lender, the applicants should consider the amount they are applying for the loan; otherwise, any amount borrowed beyond the actual financial need can be a burden during repayment.
Evaluating and choosing the right lender for availing of the loan is important. Today there are many banks and other financial lenders offering short-term business loans. However, the applicants need to properly evaluate the benefits offered and other terms associated with multiple lenders by doing online/offline research to choose the best small business loans.
After the applicant finalizes the lender, the next step is to apply for the loan. The applicant must fulfill the eligibility criteria and consider other aspects mentioned below:
- The borrower needs to be a legal entity, conforming to MSME classification guidelines and the MSMEs shall be a profit making unit for the last 2 financial years and also regularly filing the GST returns for the last 2 financial years.
- In the past, the entities should not be falling under the NPA/Stress category of credit facilities by any other banks/vendors.
Age of the applicants:
For individuals the age of the applicant + Loan period should be within 70 years.
A healthy credit history is critical for the sanctioning of the loan, there are various limits set by the banks, however some of them are mentioned below. These criteria vary based upon the policies of the bank lending the loan.
a) For Individuals, Credit Bureau score of 675 and above.
b) For Non individuals, the CRIF score shall be 700 and above
Tenure of the loan:
Quick business loans, as the name suggests are usually offered for a short tenure of 12 to 35 months, depending upon the policies of the bank that is lending the loan.
Banks offer flexibility for repayment of the loan amount. One of such banks is Karnataka Bank, offering flexible repayment options such as on demand repayment and EMI facility based on the loan type availed under the “KBL- Xpress Business Quick Loan” scheme.
Rate of Interest:
In order to encourage the MSME ecosystem in India, Both the government and the financial lending sector have been the major contributors by providing business loans at attractive interest rates. Short-term Business Loans interest rates vary from lender to lender and also depend on the type of loan one takes.
The covid-19 pandemic affected the operations across many industries due to financial distress. Owing to governments’ various measures to revive the business sector, the business has picked up operations. However, many of them still face difficulty in sustaining the daily operational costs, equipment purchase costs, etc that do not require funding of large amounts and are required at a short notice time. In such situations, opting for a long-term business loan cannot be a solution since they require a lot of documents to be produced for verification and the longer sanction times, collateral, etc. Short-term business loans are good alternatives for such difficult situations; businesses can make the best use of them while considering the factors mentioned above.
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