The name of the short-term loans comes from the fact that they get paid off quickly and not because you receive the funds fast. Usually, all the short-term loans reach maturity, i.e. they need to be paid in full, in about six to eighteen months. When you have loans that have repayment periods more than that time, they are known as long or medium term loans and not short-term loans. In some short-term loans, the repayment is on a daily basis as in you will have to pay up a specific amount on a daily basis.
The Major Advantages Of Short-Term Loans
The popularity of short-term loans comes from the fact that they carry many benefits. Some of the top advantages of going for short-term loans have been mentioned as below:
The Low-Cost Capital : The best and the first thing as a benefit of these loans is the lower cost of capital compared to other loans. Even when the loans have high interest rates, they take interest for a short time and thus, they end up accumulating less interest as a whole. Though, the interest rates can be very high for short-term loans, the funding costs much less than a long-term loan, including the long-term loans with a low-interest rate.
Quicker Time Of Receiving Funds : Most of the short-term loans get the funds much quicker when you compare it with the long-term loans. The underwriting process of the short-term loans is lesser than long-term loans, and that is one of the reasons for receiving funds quickly. The long repayment time also makes a loan risky for any lender. The short time of repayment also lessens the risk for the lender. The application process and the papers are more for the short-term loans, but that is good for the applicant as the process becomes quick for this fact.
Easy To Qualify For:
The low-risk factor of Short term loans also ensures that you can easily qualify for those. No matter how good a loan sounds, it is of no use to you if you are unable to qualify for it. Thus, the short-term loans come in handy for any person looking to tide over the crisis right at that moment. Businesses generally need to operate for six months and have stipulated annual revenue to qualify for the short-term loans. The businesses are drawn towards these loans because of the accessibility factor.
However, the short-term loans are usually given for small amounts of money, and you need to think about the amount of money that you will need before going in for these loans. Consider all the factors before availing such an amount for your business.