5 Types of Short-Term Loans in India: A Comprehensive Guide

Business owners can often find themselves in a challenging situation trying to cover unexpected costs like equipment repairs. Short-term loans can be a lifesaver in such situations, offering immediate access to credit for a limited duration. Short-term loans in India standout with their relatively shorter repayment durations ranging from 6-36 months. Such loans are a great choice for obtaining urgent funding since they come with quick disbursals, flexible repayment options, and minimal documentation. Moreover, depending on your funding needs, you can choose from a variety of short-term loans online.

Five Types of Short-Term Loans in India

Let’s review the five types of short term loans available in India:

Trade Credit

Trade credit is a common type of short-term business loan available to enterprises. Suppliers offering this interest-free credit facility allow businesses to make purchases on credit and pay later, typically within 30 days. However, in certain cases, you can request a longer repayment duration to suit your budget and cash flow. Trade credit is one of the best types of short-term business loans for enterprises with a low immediate cash flow that need to make urgent purchases.

Bridge Loans

Bridge loans are ‘gap loans’ that help you fund your requirements until you secure another bigger loan. Businesses waiting for funds from a bigger loan can obtain such short-term loans online to bridge their funding requirements in this interim period. In India, people use bridge loans as a common type of short-term funding to make property transactions. Bridge loans essentially offer temporary financing until you can secure a larger loan with better terms.

Bank Overdraft

Bank overdraft is a short-term loan facility available to current account holders. The overdraft facility allows you to withdraw more money than your current account balance, up to a specified credit limit. Businesses often use such short-term business loans to meet immediate short-term cash flow requirements since interest is only charged on the withdrawn amount. However, you should be careful about additional costs like fees per withdrawal.

Read Also: The Business Loan Checklist: How to Prepare for Approval

Demand Loans

A demand loan is a common type of short-term loan available online. Demand loans can be secured against your insurance policy or other savings instruments like the National Savings Certificates (NSCs). With demand loans, you can secure a certain portion of the investment’s maturity value as a short-term loan. The loan amount and eligibility are determined by the lender. Demand loans are perfect short-term funding solutions for businesses with a low credit score. Entrepreneurs who have eligible savings investments can leverage the same to secure the required short-term credit with ease.

Personal Loans

Personal loans are a common type of short-term loan in India. These unsecured loans have no end-use restrictions offering borrower flexibility in terms of usage. Therefore, you can obtain a short-term personal loan for various purposes such as education, home renovation, office renovation, weddings, etc. Eligibility for such short-term loans are determined on the basis of your employment status, credit score, and income level. Individuals and business owners can obtain such short-term loans online to meet various requirements without pledging collateral.

Conclusion

Short-term loans in India ensure easy access to capital to help you meet various personal and business needs. With multiple short-term loan options like trade credit, bridge loans, overdraft, demand loans, and personal loans, you can conveniently choose one that best suits your specific requirements. However, when applying for a short-term loan online, be mindful of the eligibility requirements, fees and charges, and loan terms to shortlist the best option.