Tata Capital > Blog > Loan for Business > Difference between Short-Term Business Loans and Small Business Loans
01 August 2024
3 mins read
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Confused between short-term business credit and small business loans? Wondering which one is ideal for your business requirements? Read on to find out the difference between the two.
A small business loan is specifically designed for small to medium scale companies or start-ups. These loans help such organisations quickly get the required funds for various expenses like buying machinery, payroll, etc.
Short-term business loans are unsecured loans available to businesses of all sizes for meeting immediate business needs. These loans typically have a tenure of one year or less and don’t require any collateral.
Additional Read: Short Term Business Loans – Pros & Cons
Now, let’s look at how the two business finance options differ from each other.
| Short-term business credit | Small business credit |
| Short-term loans are usually available to any business organisation looking to overcome a financial emergency. | A sub-category of SME loans – small business finance is only available to small and medium-sized businesses. |
| Since short-term loans have a shorter tenure, you need to repay the loan amount within a year. Your income and repayment capacity will determine the EMI amount. | A loan for a small business usually comes with flexible repayment terms, which change according to your cash flow. Lenders often decrease or increase the EMI amount based on your business health. |
| Business loan interest rates for short-term loans are usually higher in comparison to small business credit. | Most lenders offer lower interest rates for small business finance options than short-term loans, as they’re specifically meant for small businesses who cannot afford higher rates. |
| You need not worry about pledging collaterals to avail of short-term finance. You can still get a loan from most lenders even if you have a lower credit score. | Loans for small businesses can be secured or unsecured. If you have a good CIBIL score, you need not worry about collateral when applying for the loan. However, with a weak credit score, you must pledge your assets as collateral to get the required funds. |
| Short-term finance entails little to no paperwork. Hence, you can quickly get your loan approved and access the funds within days. | For small business finance, the approvals can take quite some time, as they involve more paperwork. |
| As mentioned before, a small-term loan requires minimal documentation. Lenders usually check your credit history and annual revenue to sanction the loan. | Since lenders consider small businesses or start-ups risky, they ask for various documents to approve the loan. These can include financial records, proof of business longevity, credit scores, revenues, etc. |
Additional Read: Why should you apply for a small business loan?
Looking for a business Loan? Tata Capital has got you covered. Access a host of premium facilities such as flexible EMI options, flexible business loan eligibilityterms, attractive interest rates, and much more.
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