Short-Term Bank Loans For A Startup

Short-Term Bank Loans

Money, capital, finance, funds, monetary assets. All these financial terms can scare anyone away. However, an Entrepreneur should know how to play with these terms, if he aspires to become successful. Raising Capital, especially when it comes to startups can be a very big issue. Entrepreneurs with their startups look for capital and funds wherever they can. Sometimes it may happen that a company is going through a serious financial crisis, at that time the company may look for financial help. It can be through loans or funds. However, it is very difficult for a startup to raise enough funds. Therefore taking loan seems like an easy way. However taking loan makes you a debtor for a long period of time (Long-term loans). Here come the short-term bank loans. Described below is what short-term bank loans are and how they can help you and your startup.

Now, Short-term bank loans as the name suggest refers to a loan with a less maturity period, generally one to three years. It also depends upon the amount of loan taken. You can always take a long term loan however short term loans have considerably low-interest rates. The risk involved is lower in short term loans and are easier to obtain. Short term bank loans are generally considered in times of emergency. Startups can be benefited from the features of the short-term bank loans. Since they don’t have much capital. Lower interest rates for a short period are a good option.

The amount can be withdrawn under forty-eight hours, however, the high amount cannot be taken as a loan. They include working capital loans, loans concerning accounts receivable and lines of credit.

When it comes to startups, banks can be wary of giving loans, seeing the high probability of the failure of the startup. Credit history and collateral can help you there. Collateral includes accounts receivable, inventories and personal assets. Collateral acts as a guarantee for the bank. Your business plan should be impressive and realistic. It should not be full of optimistic views. it should show a practical approach to certain things. Try and show the bank that what they will gain with funding your company. They don’t care about you. They care about their money.

The amount of money you are expecting should be clearly mentioned. Also what the money will be used for should be planned beforehand. Without collateral security, banks do provide loans. This is done under the CGTMSE scheme (Credit Guarantee Fund Trust Scheme for Micro, Small and Medium Enterprise). This scheme works under a specific framework. This scheme is not applicable for research work or technology development.

So, we can say that short-term bank loans can help start-ups but only up to a certain limit. They should be considered in times of emergency only. Funds and other investors should be the first option for any start up. Plan carefully and practically. Be transparent and you will get a loan quickly. Security matters but what matter more is your approach towards certain things. Take the right step.

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This article has been contributed by Simmi Setia, Content Writer at LegalRaasta, an online portal for GST Software, GST Return Filing, GST Registration, Section 8 Company Registration, Nidhi Company Registration, IEC Registration, Fssai License, File ITR Online.