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Short-Term and Long-Term Business Loans How to Choose One
Posted on Monday, December 16th, 2024 | By IndusInd Bank
Business loans are often the fuel that help unlock growth opportunities for a business. It is common to take on debt to meet business needs as they arise or when you are creating something with a long-term vision. You can avail different types of business loans as well, based on why you are taking a loan, the speed of disbursal, and the amount required among others. Each type of business loan has its own use cases and features.
What Is A Short Term Business Loan?
You can think of short term business loans to meet the smaller or operational needs of your business. These can be unexpected expenses and short-term opportunities among others. There is often an overlap in such loans, such as quick business loans. Typically, this can be considered a quick business loan for which the repayment duration is short.
If your business is more than 24 months old, explore IndusInd Bank Quick Business Loan here.
What Is A Long Term Business Loan?
A long term business loan is usually for a large principal amount paid back over a longer time frame. The reasons for a long term business loan can vary – although usually it is a tool for business capacity building. It allows you to buy the tools or hire the people who create an infrastructure for your business needs to grow a vision or a plan. The long repayment period also enables you to sustain running your business through its different phases of expansion. These differences make up the contrast between long term and short term business loans.
Which Type Of Business Loan Is Right For You?
The key aspects of choosing a business loan depends on different factors. These include:
1. The reason behind your business loan
Typically a small business loan is a short-term solution for a temporary situation – like meeting one-off or unexpected expenses while maintaining a smooth cash flow. A short term business loan is a finance tool that lets you solve the problem at your own terms. This way you can focus on an achievable and long-term solution without cash-related business urgency.
2. Your window of repayment
While a typical short term business loan is usually for a small amount, there can be other reasons to extend the repayment period for such a loan. One might want to maintain a stable cash flow, adding flexibility to business operations, or even enjoy ongoing business loan tax benefits. However, the longer a business loan is for, the higher the cost of interest in its repayment.
3. The amount of principal
Typical business loans for small amounts are straightforward to pay back quickly – usually within a year or two. However, medium or larger amounts are better paid off over longer amounts of time. At any business size, a loan of ₹2 lac is much easier to pay off soon compared to a loan of ₹2 crore.
Indicative Table: Business Expenses & Loans
| Nature of business expense | Type of business loan |
| Financing the next lot of FMCG inventory | Short-term business loan |
| Hiring a bright marketing person | Short or medium term business loan |
| Buying a good asset below market price | Short or medium term business loan |
| Financing a batch of EVs for a taxi fleet business | Medium to long term business loan |
| Buying a warehouse or building a factory | Long-term business loan |
Conclusion
It is convenient and useful to take a business loan. It is also common to receive a quick business loan online. A short-term business loan is a helpful tool for managing cash flow, participating in opportunities, or meeting unexpected expenses. You can consider taking a long-term business loan for plan-based building development or capability expansion. Activities like beginning a complementary business division or buying a factory or warehouse are best financed by long-term loans.
Explore how to get a small business loan here.
Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.
