Short-Term Loan Advantages & Disadvantages 

Working capital is used to run the day-to-day operations of a business organization. This capital is raised from short-term financing. That is, short-term financing is required to meet the financial needs for a short period.


Short-term financing is one of the most popular types of financing. Current assets are a variable part. Short-term financing is required for the purchase of this part. There are some features of this financing. There are:

1. Short-term:
Short-term financing tenure is up to 1-year maximum. However, payment can be made in less than 1 year. For example, 7 days, 15 days, 1 month, 2 months, Tamas, and 6 months can also be.

2. Expensive:
Short-term financing is provided for a short period. Hence such financing is risky and incurs additional charges.

3. Purpose:
Short-term financing is provided for investment in current assets. Debtors, closing stock, advance expenses, etc. are included in current assets.

4. Financing process:
Unsecured loans are short-term loans. No application is required for this financing. So this loan is easily available.

5. Amount of financing:
If the amount of fixed assets in the business is high, short-term financing is less, on the other hand, if the amount of fixed assets is low, such financing is needed more. Therefore, short-term financing depends on fixed assets.


Businesses need to finance working capital for a short period. Small, medium, and large-scale businesses enjoy short-term financing. The benefits of this financing are:

1. Easy collection method:
Money is easily collected through short-term financing. There are no complications and no formalities in this financing. Business reputation, cash flow of funds, trust, faith, etc. act as collateral for the borrower.

2. Duration: 
In this type of financing, informality can raise money in less time. Due to this, the popularity of short-term financing is high.

3. Flexibility: 
Short-term financing is used for investing in current assets. The amount of this investment is not always the same. Therefore, it is possible to take and repay the loan as needed. For this flexibility, the use of short-term loans is more common.

4. Easy terms:
Lenders offer easy terms for short-term financing. As a result, borrowers are interested in raising money with this financing easily.

5. Income Tax Benefits:
The lower the short-term loan, the lower the income tax. Deducting the interest on the loan from the total income of the business reduces the income tax.

Along with the advantages of short-term financing, there are also some disadvantages. The disadvantages of this financing are:

1. Frequent Maturity: Short-term financing has a short repayment period. More loans have to be repaid with interest in a short period. If you fail to repay the loan on time, the chances of not getting the loan in the future are high. So the organization needs to keep track of when a loan is due and how to repay it. This may disrupt some of the business operations.

2. Price increase: 
Short-term financing costs more, so one has to charge more for the product price. Surviving in a competitive market faces many problems.

3. Risk: 
Short-term financing has to be repaid within a short period. The amount of risk in this financing is high. If the conditions are imposed on the loan, the amount of risk increases a little more.

4. Higher interest rate:
Most of the time the interest rate is higher against short-term loans. As a result, business capital costs are high and profits are reduced. The brokerage class provides short-term financing for a short period at high-interest rates.

5. Loss of cashback opportunity: Cashback opportunity is given on payment of goods purchased on loan. If the merchant fails to pay the price, he will lose the chance of cashback. It may be difficult for him