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SME businesses often need financial help in order to expand and sometimes even sustain their business. With an injection of funds, for example, a business owner can bridge gaps in cash flow, tend to emergencies, pursue new growth opportunities, and more.
But the business loan landscape is both varied and complex, with loans taking on different shapes, forms and mechanics. There are credit lines, commercial property loans, merchant cash advances, short and long term loans—just to name a few—each often suited to specific situations. Today we’ll focus on short tenor loans, or to be specific, when is a short tenor SME loan better for your business.
Short tenor loans or short term loans are loans that involve a relatively shorter period of repayment, usually less than one or two years. They usually involve a much lower quantum of financing compared to long term loans, and don’t often require collateral.
Short term loans can take on a variety of structures. The most common loan for SMEs would be term loans, with a fixed loan amount to be repaid over a fixed period of time. Other examples include invoice financing, lines of credit and merchant cash advances.
Compared to long tenor loans, short term loans tend to be easier to acquire, since the loan amount and therefore risk is also lower.
Many SME business owners run small operations with fluctuating incomes. As such, it often becomes necessary to avoid long-term debt. Smaller, short term loans that can be settled within a year or two reduce the financial strain on the business.
Less debt translates to better profit prospects as your business grows. Minimal liabilities also pose fewer risks for your business in the long term, giving you more financial freedom.
Although short tenor loans generally incur interest rates that are higher than long tenor loans, the total interest you pay is much lower. Repayment for long tenor loans can last up to several decades, and the total amount paid is often significantly higher than the principle. Since interest accrues over time, a short-term loan incurs less total interest, even at a higher rate, because it is repaid quickly. Keep in mind that if cash flow is tight, a long-term loan with smaller monthly payments may be less of a financial burden.
Dealing with an emergency situation as a business owner can be one of the most nerve wrecking experiences. In times like these, access to quick financing comes in useful. When you need quick financing for your SME, short tenor loans are of course preferable due to the fact that they require less time to process.
As the amount loaned to you is relatively low the documents and records required by lenders will also be minimal. This speeds up the approval process, helping you obtain your funds in a timely manner.
SMEs who apply for short tenor loans will find that the eligibility requirements are more relaxed compared to longer term loans. This might come as a relief for companies who may not have a credit history that allows them access to long term, higher quantum financing.
Speaking of credit scores, they are perfect for improving credit rating. With timely repayments on these loans, companies will be able to gradually improve their credit scores, leading to an easier time obtaining higher quantum loans in the future.
Conventional term loans may not always be the best option for companies. Fortunately, when it comes to short tenor financing, various products are available. A good example of this is credit lines, where companies can draw small amounts within their credit limits at any time, and repay them over the next year or less. This form of financing helps SMEs facing cash flow problems or fluctuating incomes to keep their operations afloat. It is a flexible form of financing capable of meeting a plethora of unique needs at a moment's notice, which cannot be said for conventional term loans.
Other alternatives for short tenor loans include invoice financing, merchant advances, and more. SME owners will also find that a wide range of lenders offer short tenor SME loans.
Taking on a loan, with a short or long tenor one, requires a degree of planning and research. We found that the best deals are found after much comparison. Take advantage of Lendingpot, Singapore’s leading digital loan marketplace.
Our platform grants you access to more than 45 lending partners, including some of the nation’s leading banks and private financial institutions. Through a quick and easy registration process that requires only your Singpass Myinfo business details, you can gain access to a plethora of loan offers suited to your unique needs. Contact us should you need help obtaining your SME loan, our loan experts will be happy to guide you every step of the way.
Lina heads up all things marketing and branding at Lendingpot. With a keen aesthetic eye, she believes in the use of design to communicate with our SME community and aspires to turn Lendingpot into a household name. Out of work, she is an avid camper and appreciator of nature’s best works.
