Running a business smoothly warrants a steady flow of cash. While revenues earned help you maintain a healthy cash flow and address various business needs, there are occasions when you need to procure loans for sustaining operations. Today, you can avail loans of a substantial amount, both for short-term and long-term.
However, it’s essential to note that these two types of loans are vastly different from one another in various aspects such as tenor, loan amount and processing and disbursal time among others. Read on to know the difference between these two types of loans to make an informed choice.
1. Loan purpose
If you are looking for immediate cash needs of your business such as inventory re-stocking, paying salaries to employees, etc., a short-term loan would be the ideal financing solution for you. On the other hand, if you need funds for expanding your business reach by buying a new plot of land, setting up your factory or office infrastructure, installing plant and machinery, etc. then a long-term loan would be a good financing solution.
This is because generally, long-term loans offer a bigger loan amount than that offered by short-term loans.
2. Duration of the loan
As the name suggests, a short-term loan has a short repayment tenor. This can range from 1-3 years. However, the tenor for a long-term loan can range anywhere between 5-10 years or even more.
As the loan amount is substantial in a long-term loan, so is the tenor. A long-tenor helps to spread the EMIs as per the convenience of the borrower.
3. Need for collateral
A collateral is an essential component of secured loans. For short-term loans, generally you needn’t pledge your personal asset(s) on the line as collateral. However, for long-term loans, you might need to offer a collateral to your lender.
The collateral can be anything you own – property, jewellery, life insurance policy, etc. The collateral acts as security which the lender can seize in case of a loan default.
4. Processing time and documents
Short-term loans are processed much faster than long-term loans. While the former can be processed within a few hours, the latter might take a few days to even a week. This is because of the substantial loan amount associated with a long-term loan.
Also, when it comes to documents, short-term loans require fewer documents. While your ID and income proof are enough for a short-term loan, a long-term loan may require copies of bank statement, IT returns, balance sheet, certificate of business existence and property documents among others. Both short and long-term loans have their own advantages, you can decide what suits your needs the best. They give you the funds required for various business operations and help you take your business to the next level.
With pre-approved loan offers on short-term business loans and long-term business loans, Bajaj Finserv makes the process of availing finance a hassle-free affair. You can discover your pre-approved offer by just sharing a few basic details.
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