Description

As the Indian economy is growing bigger, the contribution of small businesses is playing a significant role. An increasing number of small scale startups are operating across the country every year. However, without external funding, many startups fail to continue for a longer time. Every business needs financial assistance from outside at different stages of its life. While regular business loans are available for long-term funding, you need to understand about short-term business loans and how to get them. 

What is a short-term business loan?

Short-term business loans are financial options for short-term funding requirements of a business. Short-term business loans can be used for a host of business requirements such as working capital needs, business operations, purchase of machinery, supply chain financing, for the payment of creditors, business expansion and asset acquisition. If you are not able to get long-term business loans for some reasons, you can apply for short-term business loans.

Short-term business loans are generally unsecured loans i.e. borrowers don’t need to offer any collateral for the loan amount availed. These loans are usually available for one year and paid in monthly instalments. 

Where to get short-term business loans from

Business owners can get a business loan from the bank they share a good relationship with. Multiple microfinance providers and NBFCs (Non-Banking Financial Companies), including Bajaj Finserv, ZipLoan, LENDINGKART, Indifi and Capital Float, also offer short-term business loans. 

The government of India also introduced the Startup India Scheme to empower small businesses and young entrepreneurs by offering startup loans. Under the Startup India Scheme, different types of short-term business loans are available for startups and MSME (Micro, Small and Medium Enterprise). 

Benefits of short-term business loans

Borrowers can enjoy a host of benefits by getting short-term business loans for the financial needs of their business:

  • Minimal paperwork: Lenders offer unsecured short-term business loans that’s why the loan application process is short and simple. 
  • Instant approval: Since loans application process involves minimal paperwork, eligible customers can get instant approval. 
  • Instant funding: After the short and simple loan application process and instant approval, the loan amount is disbursed immediately. 
  • Easy availability: If you are not able to get long-term business loans, you can apply for short-term to meet urgent business expenditures. 
  • Multipurpose loan: Short-term business loans can be used for the varying financial needs of a business, including working capital needs, daily operations and asset acquisition. 
  • Digital process: Now lenders offer short-term business loans through digital platforms like websites and apps. 

Important points to consider before applying for short-term business loans

Short-term business loans are good options for small business to expand their business and for startups to start a new business. Applicant must consider the important points regarding short-term business loan application before applying for the loan to get the desired results.  

  • Check your eligibility for the short-term loans
  • Compare rates and terms from multiple lenders
  • Keep the documents handy
  • Short-term business loans are available for short-term only usually for 12 months
  • Keep your business plan ready 
  • Outline the objectives and goals of your future venture
  • Calculate the amount you need as precisely as possible
  • For startup business loans, clearly summarise the application of funds in your business plan.

Documents required to get short-term business loan

While documentation may vary from lender to lender, here is the checklist of common documents required to get a short-term business loan:

  • Business paper
  • Photographs: 2 copies (passport-size)
  • Proof of Identity: Passport/ Aadhaar Card/ Voter’s ID/ Driving License
  • Address Proof: Passport/ Driving License/ Aadhaar Card/ Utility Bills (Postpaid Phone Bill/ Electricity Bill)
  • PAN Card of the owner or business
  • Proof of Income: Bank Statement for the last six months
  • Bank proof: Cancelled/ scanned cheque, copy of the front page of your passbook
  • Signature proof: PAN Card, Passport, Bank verified signature
  • Business continuity proof
  • Additional documents: 
  1. Sole proprietorship declaration
  2. For business in partnership: Partnership deed /MOA, AOA and Board resolution certified copy
  3. B/S, P&L a/c of partnership firms for the past 2 years with all schedules audited by a Chartered Account in case income is derived from partnership firm

Loan amount Calculator , interest rates and repayment tenure vary from lender to lender for short-term business loans. For example, ZipLoan offers business loan up to Rs. 5 lakh for a flexible repayment tenure ranging from 12 to 24 months. Whereas, a business loan up to Rs. 50 lakh at 1.5% per month interest rate can be availed for up to 36 months from Indifi. 

Startup loans offered under the Startup India Scheme are more flexible in terms of eligibility, loan amount and tenure.