Although you have several sources of business finance that you can tap into, a business loan remains to be the one that trumps them all. It offers maximum flexibility, complete control over your business and a high amount of funds too, making it ideal for all your business needs. But, before you take a business loan, it is important to pay attention to whether you should take a short-term or a long-term business loan.
Short-term loan vs. long-term loan
The difference between the two loans is with regards to the tenor or repayment duration. A short-term loan has a tenor of around 18 months, whereas a long-term loan as a tenor of 10 to 15 years.
Take a look at the following conditions to understand which loan you should avail of in which scenario.
When you have immediate needs
If you need funds to smoothen out cash flow issues or to meet inventory costs for production during peak season, you will need access to money at a moment’s notice. In such a scenario, short-term business loans are better as they offer you credit within 24 hours, while long-term loans take up to a few days to disburse funds.
When you need a high loan amount
If you need to fuel expansion costs or expenses related to setting up a factory, for example, you will need access to a large number of funds, for a longer period of time. In this situation, it is better to use funds from a long-term loan as it offers you a higher loan amount as compared to a short-term loan.
When you want to keep your cost of borrowing to a minimum
A short-term loan has a higher rate of interest, whereas a long-term loan has a lower rate of interest. So if you want to keep your loan as affordable as possible, choose the latter option. The low rate of interest combined with the long tenor will keep your monthly outflow to a minimum. If you’re setting up a regional office, for example, this will benefit you greatly. You will be able to pay a low EMI and contribute more to your business’ savings and investments, all while ensuring that your working capital stays intact.
If you have a less-than-ideal credit score
Don’t forget to take your credit score into consideration when you’re selecting a loan variant. Your credit score may be weak because of past financial decisions, or simply because your company is new and yet to build its credit score. In both situations, opting for a short-term loan is ideal. The short tenor means that lenders are less critical of your credit score before granting approval. If you’re an established business with a solid credit score, you can choose either loan option.
If you have collateral to submit
In this scenario, you can use the collateral to your advantage to get higher funds with a long term business loan. But, if you have no collateral to pledge in exchange for funds or don’t want to risk your assets, it is better that you choose a short-term one, as it is a collateral-free loan. Funds are granted without you having to meet this prerequisite.
Choose Bajaj Finserv’s Business Loan
If you can’t make a choice between the two, you don’t have to. You can avail the best of both these loans by choosing a Bajaj Finserv business loan. Here, you can avail a high loan amount of Rs.30 lakh to cater to immediate needs as well as long-term ones. With the choice of a flexible repayment tenor, you can choose a period that ties in with your financial situation. Besides, it is a collateral-free loan, which means that you don’t have to risk your assets to avail funds.
The nominal rate of interest ensures that your loan is affordable, and the Flexi Loan feature makes the loan even more cost-effective. Here, you can withdraw from the total Flexi Loan sanction amount as and when the need arises and pays interest only on the amount that you actually use. The rest of the amount is available to you whenever you need it. Additionally, you can choose to pay interest-only EMIs to keep costs low. Then, repay the principal at the end of the tenor. You only have to apply for the loan once, and then you can withdraw, repay and redraw funds as many times as you want to, without worrying about completing paperwork each time. You can also make prepayments and re-avail the prepaid funds if and when you need to. Thus you get convenience and affordability with this loan.
With funds disbursed in as soon as 24 hours, easy eligibility, pre-approved offers an online application and loan management services, choosing Bajaj Finserv’s Business Loan serves as an excellent way to finance your business’ needs.