What Is The Short Term Loan?

What Is The Short Term Loan?

From Bob Flores

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Most probably you’ve hard about the short terms loan. Moreover, since you are reading this article you might be interested in borrowing. Yes, people talking about finances all the time and it may seem that lending is a simple thing. Well, it might be not hard to understand how to apply for a short term loan, but the question is do you really understand what is it? Without further ado, let’s figure it out.

Obviously, a loan meant to help people deal with urgent financial needs. A short term loan simply means that type of financing that is gotten for the purpose of offsetting temporary business or personal monetary needs. Why temporary? Because a borrower will need to return he most plus interest pretty soon.

The Major Characters of This Type of Loan

Now, the major distinguishing factor between this and other types of funding lies in the name, and that is also the major characteristic of the loan system. It indicates the fact that this loan must be paid off as quickly as possible. On a lighter note, people say that the borrowing must be repaid as quickly as it is gotten. According to Corporate Finance Institute, the normal duration for this in most cases is about 3 months. Some lenders may suggest a repaying period of up to 6 months or even up to 1 year. But the maximum is normally a year and a half. Whenever the term of the loan exceeds this point, it is no longer a short term loan. It moves up the category to a medium or even the long term type.

Who Qualifies For the Loan?

The short term loan comes with no security asset (known as collateral) for the lenders. All they rely on is the borrower’s ability to pay back, as ascertained through the documents presented.

Because of this, it becomes imperative to ensure that the documents are properly scrutinized. So, if anybody wants to be eligible for this, this person has to come with comprehensive documentation. Below you can see some points that are subjects of the lender’s interest.

1. The first thing they look for is your credit history. It includes the payment history of all your other loans held in the past. It also involves payments to your previous suppliers and the cash flow of your firm if that is the case.

2. This is followed by your income statement. This document can be in the form of income tax clearance for self-employed people or payslips for those who work for employers. There may also be a need for employment certificates.

3. Also, the borrower will need to present a verifiable identification system. Many lenders will demand 2 types of IDs: the primary and secondary ones. The primary one will include the national ID, passport, driver’s license, etc.. The secondary type will include utility bills, company IDs, etc., and one of these documents must indicate your physical address. 

4. There would also be the demand for proof of age, since this cannot be given to people below the productive age, which is normally 18 years and above.

Types of Short Term Loans

This system of financing comes in several forms, which are described below. 

Bank Overdraft is the number one loan that comes with very short terms. This is a line of credits that are attached to the borrower’s bank account. This is how it works: if you have an account and don’t have funds there anymore, but still need to make a payment, a lender may allow you to overdraft the balance. Sure, you will need to pay it back later. Here, the amount that one can overdraft with their account is prefixed by the bank.

Merchant cash Advances are loan-like cash advances given to a borrower from a lender.

Merchant cash advances can be repaid by giving the lender authority over the borrower’s credit facility. Consequently, some amount of money goes into the account of the lender once there is some money on the borrower’s account.

Lines Of Credit is another type of financing that involves opening up a certain level of credit. At the end of the month, any amount that has been borrowed receives installment payments. Since the amount of borrowed money may increase as the month runs by, monthly installments that need to be paid may vary. Lines of credit usually come with very low interests.

Payday Loans are suggested by various lenders, and they are gotten easily if a borrower has income proof. However, whatever was borrowed plus any interest must be repaid to the lender on the next payday. It is just like borrowing money from your yet to be paid salary.

Installment or Online Loans are also short term financing types, and here, all that is needed for the funds to be yours are done online, and the money is also remitted electronically. This takes just a few minutes to apply for, process, approve and remit.

Benefits of Such Loans

Short term financing comes with some known advantages, and the most prominent ones are listed below.

● They guarantee a fast receiving of money to handle problems when there are no other sources of money.

● They come to you even when you have no tangible assets to use as security or collateral.

● Short term financing helps those who own homes to build equity in a short time.

● If financing is repaid when due, the credit score of the borrower is enhanced.

● It reduces the prolonged stress of being a debtor for a longer period of time.

● It is possible to get such loans that come with low interest rates if you search well.


Short term loans present the most immediate source of raising funds for immediate needs, and they come with terms that are not cumbersome. For someone who is in an immediate need of funds, and is gainfully employed, this presents an amazing chance to resolve financial problems.

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