A short term loan is a valuable option, especially for small businesses or start-ups that are not yet eligible for a credit line from a bank. The loan involves lower borrowed amounts, which may range from $100 to as much as $100,000. Short term loans are suitable not only for businesses but also for individuals who find themselves with a temporary, sudden cash flow issue.
Characteristics of Short Term Loans
Short term loans are called such because of how quickly the loan needs to be paid off. In most cases, it must be paid off within six months to a year – at most, 18 months. Any longer loan term than that is considered a medium term or long term loan.
Long term loans can last from just over a year to 25 years. Some short term loans don’t specify a payment schedule or a specific due date. They simply allow the borrower to pay back the loan at their own pace.
Short term loans come in various forms, as listed below:
This short - term loan is actually a quick cash money but still works as a loan. The lender with the money the borrower needs. The borrower paid the loan by allowing the lender to access the borrower' s credit base. Each payment period of a borrower shall be given the highest interest rate until the loan is returned.
It is also relatively easy to get a short term loan where everything is done online – from application to approval. Within minutes from getting the loan approval, the money is wired to the borrower’s bank account.
This type of loan is made using the receivables of the enterprise - invoices that customers have not paid. The lender will lend money and interest rates based on the number of weeks that invoices are still unpaid.
There are many advantages for the borrower in taking out a loan for only a brief period of time, including the following:
1. Shorter time for incurring interest
As short term loans need to be paid off within about a year, there are lower total interest payments. Compared to long term loans, the amount of interest paid is significantly less.
2. Quick disbursing time
3. Easier to borrow
The main disadvantage of short term loans is that they provide only smaller loan amounts. As the loans are returned or paid off sooner, they usually involve small amounts, so that the borrower won’t be burdened with large monthly payments.
Short - term loans are useful for both enterprises and individuals. For businesses, they can provide a good way to solve pressing problems in cash flow. For individuals, such loans are an effective budget.