On average, a business loan tenure(a loan’s length)can vary anywhere between 12 months to 60 months. And based on the loan tenure, your loans are categorised either as ‘short-term’ or ‘long-term’. How do the two differ? Let’s find out.
Short-term financing vs long term financing
Choosing between the two financing options could mean a significant difference in your loan terms like:
- Equated Monthly Instalments or EMIs
- Total interest payable over the loan’s duration
- Your loan amount eligibility
A long-term loan usually comes with lower EMI burdens, which are spread over a longer tenure. As a result, your monthly EMI payments do not affect your monthly cash flow cycles negatively.
In contrast, short-term business finance offers a shorter repayment period, allowing you to meet immediate cash needs, including working capital fluctuations and other operational expenses. You can also pay back the debt and free up your capital faster.
Additional Read: Short Term Business Loans – Pros & Cons
Moreover, traditional lenders usually apply stricter business loan eligibility requirements for long-term financing options since more risk is involved. Naturally, they rely on heavy documentation to ascertain you can pay back the loan timely.
Thus, when borrowing a business loan, you should always select the tenure wisely. And as a thumb rule, compute your EMI commitments in advance using an online business loan EMI calculator.
Key differences between short-term and long-term finances
|Parameters||Short-term business loans||Long-term business loans|
|Tenure||A short repayment tenure ranges between 1 to 3 years.||An extended repayment tenure, ranges from 5 to 10 years, even more in some cases.|
|Eligibility criteria||Slightly more relaxed eligibility conditions||Stricter eligibility conditions|
|Interest rate||Interest charged is typically higher.||Interest charged is comparatively lower.|
|Processing time||They usually provide quicker access to funds, sometimes in only 24 hours.||They usually have a detailed application process and may take a week or two.|
|Documentation||Minimal paperwork||Heavy paperwork|
|Disbursal time||Quicker disbursal – typically within days||Disbursal depends on the lender – may take a week or two.|
The better choice?
Both financing options come with a host of advantages you leverage to meet your funding requirements. Ultimately, the final choice will boil down to how the two finance options align with your unique business needs. And one way to ascertain this is by answering the following questions:
- How soon do you require the money?
- How soon can you pay back the borrowed amount?
Besides, for better estimates of your EMI commitments and interest payable over the loan’s duration, an online business loan calculatorwill be of immense help – allowing you to chalk out your finances favourably.
Additional Read: 10 Benefits of Taking a Business Loan
Over to you
Are you looking for short-term or long-term finance at attractive interest rates? If so, then why not turn to India’s leading finance company – Tata Capital?
With us, get funds at a competitive business loan interest rate, for a tenure most agreeable to your business-specific requirements. Want to apply? Check our detailed eligibility criteria at Tata Capital website.