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Tata Capital > Blog > Loan for Business > Difference between Short-Term Business Loans and Small Business Loans

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Difference between Short-Term Business Loans and Small Business Loans

Difference between Short-Term Business Loans and Small Business Loans

Confused between short-term business credit and small business loans? Wondering which one is ideal for your business requirements? Read on to find out the difference between the two.

What is small business finance?

A small business loan is specifically designed for small to medium scale companies or start-ups. These loans help such organisations quickly get the required funds for various expenses like buying machinery, payroll, etc.

What is short-term business finance?

Short-term business loans are unsecured loans available to businesses of all sizes for meeting immediate business needs. These loans typically have a tenure of one year or less and don't require any collateral.

Additional Read: Short Term Business Loans – Pros & Cons

The differences between short-term business credit and small business credit

Now, let’s look at how the two business finance options differ from each other.

Short-term business creditSmall business credit
Short-term loans are usually available to any business organisation looking to overcome a financial emergency.  A sub-category of SME loans – small business finance is only available to small and medium-sized businesses.    
Since short-term loans have a shorter tenure, you need to repay the loan amount within a year. Your income and repayment capacity will determine the EMI amount.A loan for a small business usually comes with flexible repayment terms, which change according to your cash flow. Lenders often decrease or increase the EMI amount based on your business health.
Business loan interest rates for short-term loans are usually higher in comparison to small business credit.Most lenders offer lower interest rates for small business finance options than short-term loans, as they’re specifically meant for small businesses who cannot afford higher rates.  
You need not worry about pledging collaterals to avail of short-term finance. You can still get a loan from most lenders even if you have a lower credit score.Loans for small businesses can be secured or unsecured. If you have a good CIBIL score, you need not worry about collateral when applying for the loan. However, with a weak credit score, you must pledge your assets as collateral to get the required funds.  
Short-term finance entails little to no paperwork. Hence, you can quickly get your loan approved and access the funds within days.For small business finance, the approvals can take quite some time, as they involve more paperwork.  
As mentioned before, a small-term loan requires minimal documentation. Lenders usually check your credit history and annual revenue to sanction the loan.Since lenders consider small businesses or start-ups risky, they ask for various documents to approve the loan. These can include financial records, proof of business longevity, credit scores, revenues, etc.  

Additional Read:  Why should you apply for a small business loan?

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