Short term loans: Types, Application and Repayment

Aug 22, 2020

Businesses often experience a shortfall in cash flow due to diverse reasons, which can effectively hinder their operations if not resolved immediately. Companies avail short-term loans to prevent such a thing from happening. If you are an entrepreneur, these funding options can serve well in the future.

If you are wondering what a short-term loan is, here’s a look!

Lenders generally extend these loans to businesses to help fulfil their immediate funding needs. Such a term loan comes typically with limited tenure, not exceeding one to two year. The interest rate may be fixed or floating, depending on the lender and advance type you choose.

Therefore, if you come across a sudden financing need in your business related to requirements like inventory management, supply chain management and others, opting for these loans with a shorter tenure will ensure that the company is debt-free sooner.

You must understand that short-term loans include several types of individual credit facilities. For instance, bank overdraft, bridge loans, personal loans, and demand loans are all examples of loan facilities with tenures shorter than a year. Another type of short-term advance that brings high-value funding at minimal eligibility requirements is a gold loan.

Gold Loans as a Short-Term Advance and Its Uses for Your Business

According to a Bloomberg Quint report, the gold loan market in India is set to touch Rs. 4.6 Lakh Crore by 2022. Since Indians have a special attachment to gold jewellery, most households have some quantities of this precious metal lying around in their lockers. As a business operator, you can put this gold to use and raise finance via a gold loan.

Such a short-term loan comes with no end-use restrictions, offering complete freedom on how and when you want to spend the funds so availed. Rupeek Fintech Private Limited even allows you to choose from a variety of repayment options to suit your financial situation.

How Can You Apply for Short-Term Credit?

Depending on the term you pick, the application process can vary widely and include several verification requirements. Nevertheless, if you choose gold loans, you can approach the lender offline or online and complete the application process with ease. The latter is not only faster but also hassle-free. Listed below are a few steps that one must follow during a short-term loan application –

  • Step 1: Visit your preferred lender’s official website or app.
  • Step 2: Navigate to the loan section and choose your desired loan.
  • Step 3: Fill an online application form with all necessary details.
  • Step 4: Complete the documentation process by attaching scanned copies of all the necessary paperwork.
  • Step 5: Wait for approval and loan disbursal.

The process is even simpler for gold loan applications. Rupeek Fintech Private Limited processes your loan application at your doorstep. The documentation required is minimal for gold loans, needing only your KYC details.

What else? Take a look!

Benefits of Availing Gold Loans as a Short-Term Loan

The following pointers highlight why gold loans are ideal as short-term funding options.

  • Easy-to-meet eligibility criteria

Gold loans are secured against the jewellery you pledge. Therefore, this short-term loan eligibility is easy to meet. All you need is the required gold ornaments of specific purity for it to be pledged along with KYC documents.

Applicants must also confirm the purity of their gold before applying for the advance.

  • Instant loans at your doorstep

Rupeek Fintech Private Limited sends a loan manager to an applicant’s house to process the loan after he/she applies via the website or mobile app. The manager, once at your doorstep, completes evaluation of the pledged jewellery after which the loan is approved and disbursed to your account. The entire process takes only 30 minutes to complete.

Therefore, gold loans are arguably the simplest short-term loan that you can avail today. With hassle-free online applications, you can receive the proceeds of such a loan without ever needing to set foot outside your home.

Thus, if your company is waiting to close a deal due to the lack of funds, gold loans can be a go-to option. With a quick disbursal facility, your business can easily maintain operations requiring immediate financing even during liquidity shortages.

  • High LTV

LTV or loan to value ratio is important when opting for any secured loan. This characteristic, in the case of gold loans, determines the maximum amount of loan that one can avail against the value of gold pledged. You should be aware of the current value of gold, as per its weight and purity to make an informed decision regarding the amount of loan you can avail.

As per the Reserve Bank of India, NBFCs can provide LTV of up to 75% for gold loans. Thus, if your pledged gold is valued at Rs. 1 Crore, you can easily seek an advance of up to Rs. 75 Lakh from your lender of choice against the jewellery. Know that the LTV provided by Rupeek is among the highest in the market.

  • Low interest rates

Interest rates for conventional short-term advances tend to be higher since these loans are usually unsecured and increase the lender’s risk. Therefore, to balance out the risk, lenders often charge an increased rate of interest. However, the same is not true in the case of gold loans, due to the added security provided by the pledged jewellery.

You can take advantage of lower interest rates when compared to other loans with shorter tenures. This aspect significantly reduces repayment burden, allowing you to direct finances to your business.

  • Flexible repayment options

Short-term loan repayment can be stressful, primarily due to their limited tenures. Thankfully, Rupeek Fintech Private Limited offers a flexible schedule and various options to simplify debt clearance. You can choose a term ranging between 3 months and 6 months, which can go up to a year.

Additionally, you can choose to service the debt only by paying the interest outstanding every month as instalment. Here, you can repay the entire principal at the end of the tenure. With the bullet payment facility, you can also defer your entire repayment burden to the end of the term. Such options significantly ease repayment by allowing a few extra months to borrowers to arrange the necessary funds.

Regardless of whether you pick gold loans or any other short-term loan, ensure you outline your business needs beforehand. Also, make sure that you have the necessary inflow of funds to repay such loans as per the schedule required by lenders. Responsible borrowing and repayment of a term loan can help your business in steady growth.