Short term loans interest rate

Short-Term LoansA short term loan is a form of financing that is attached with a quick repayment schedule—short-term loans may have a maturation period as short as 90 days. The fulfillment of the loan is dependent on the amount of financing; however, all short-term loans possess maturity dates that are significantly shorter than regular loans.

The repayment schedule associated with the financing is the distinctive characteristic of short-term loans. Unlike regular loans, which commonly have repayment schedules of 30 years, a short-term loan must be repaid in a much shorter timespan (between 90 days and fifteen years) or immediately after the borrower achieves satisfies his initiative for securing the short-term loan. For example, when a business secures a loan to keep afloat while awaiting customer pay for a service, a lender would expect repayment as soon as the company receives pay from their clients or customers. In contrast, a short-term business loan delivered to a company for inventory shortfalls would be repaid as soon as the inventory is sold off.

Benefits of Short-Term Loans:

Short-term loans are provided to businesses or individuals in need of quick financing—the funds are utilized to satisfy a payment, off-set a loss or to relieve a cash deficit problem. As a result, all initiatives tied to this loan schedule are used to alleviate shortcomings in the short-run; short-term loans are not used for long-term financing needs.

The primary benefit of these loans is that they are immediately delivered, enabling the borrower to operate with increased liquidity. Moreover, because of their brief repayment schedules, short-term loans do not require serious commitment—the borrower is not indebted to the lender for a significant period of time.

Negatives Associated with Short-Term Loans:

Fast business loans are appropriate for both existing and new businesses. In regards to new businesses, banks or lending institutions will grant short-term business loans over regular loans because they are less risk—short-term loans provide less money at higher interest rates. Before short-term loans are granted, a lender will review the company's cash-flow history and payment track record. Typically, short-term business loans are unsecured; they do not contain collateral and the bank relies solely on the borrower's credit history and credit score.

The primary negative aspect associated with short-term loans is that this method of financing is more susceptible to default. This increased vulnerability results because of the loan’s conditions: short term loans have higher interest rates, shorter repayment dates and higher penalties if a default is realized.

Information on How to Secure a Short-Term Loan:

Short-term business loans are dependent on your credit history and the repay capability of your business—these variables will affect the conditions (interest rate, repayment date and associated fees) attached to your short-term loan.

Short-term business loans can stretch as far as 15 years; however, lenders are likely to giver shorter term loans to new or unproven businesses. Short-term loans are typically used to pay off the business’s emergency financial obligations.

Interesting facts

  • A commercial and industrial loan (C loan) is a loan to a business rather than a loan to an individual consumer. These short-term loans may have an interest rate based on the LIBOR rate or prime rate and are secured by collateral owned by the business requesting the loan.
  • Bank rate, also referred to as the discount rate, is the rate of interest which a central bank charges on the loans and advances to a commercial bank.
    Whenever the banks have any shortage of funds they can borrow it from the central bank. Repo (Repurchase) rate is the rate at which the central bank lends short-term money to the banks against...

Additional information

Define Short Term Interest Rates
Define Short Term Interest Rates
Rate Hike Is Here: Fed Lifts Short-Term Interest Rates Off
Rate Hike Is Here: Fed Lifts Short-Term Interest Rates Off ...
Lift Off! Fed Raises Short-term Interest Rates
Lift Off! Fed Raises Short-term Interest Rates
Financing the Small to Medium-Size Industrial Company: A Thesis Presented to the Faculty of the Graduate School of Pace University by Stephen J. Lynch [1974] Hardcover Book
Single Detail Page Misc
  • Hardcover Book
  • Page Count: 119 Pages
  • Produced/Published by Author, Stephen J. Lynch
  • In Partial Fulfillment of the Requirements for the Degree of MBA