Short term financing is as the name suggests loans available for short terms, typically with a repayment period within a year. These loans come in handy to meet liquidity crunch and is popular with businesses for this reason. Due to this peculiar nature of the loan, it is issued only against a collateral, usually a property. The other major deciding factor is the ability of the borrower to repay the loan. This is why credit worthiness plays a very important role. These loans are however high-risk commitments as there is no room for default. Even the lender weighs all the risks involved in such short-term loans before sanctioning each of these. Defaulting on repayments can attract heavy interests along with denting credit ratings too. This can be detrimental for future financial transactions. Apart from property as collaterals, some lenders even offer loans against investments and valuable assets like jewelry.
Such loans are available at a high rate of interest that is usually collected at the end of the tenure. But the fine print on paper while applying for the loan needs to be studied carefully as it carries details about hidden charges and penalties. With usually no credit checks required while sanctioning these loans, defaulting payments can wreck havoc to the credit score. These loans are advanced purely based on the collateral value and capacity of the borrower to repay and the only way out of such loans is to repay on time. It is very easy to get entangled with the wrong lender as there is a fine line dividing the regulated ones and the others. This is why it is very essential to check the credentials of the lender before availing such loans. Those that have a track record of bad trade practices need to be avoided even if the offers are attractive. Those that are not regulated can resort to unscrupulous methods to cheat customers that can then prove very costly.
While these kinds of loans are heavily advertised, it is best advised to approach a reputed lender through a financial adviser or accountant rather than through agents. Dealing directly with the institution and getting all the paperwork in place is always safe and helps build a bond with the lender even. Since the loans are against a collateral, there is a high risk of losing it when repayments are defaulted. Companies following fair practices help their customers close the loan through refinancing or other means while there are a handful that can arm-twist customers in their time of crisis.