Short Term Loans

Once or for the other time each and every person faces the crisis of cash needs. Situations may be different for each one; you may need it for emergency, your friend may be facing a down time in his business, where as your relative may be burdened with unexpected bills and so on. In such a situation one may borrow, ask help or find out some way. But the best way to borrow is to take a short term loan. These short term loans are a life line to the borrowers and the core of the banking business. The flexibility of its rules and regulation and the ease of availability for such loans make it the most popular channel of short term borrowing. Most of the short term lending comprises for the aid of working capital. Hence, it proves to be the best way to raise working capital at the time of crisis and cover the accounts payable.

These loans normally range for a period of 90 to 120 days or it may carry for a period of three years too. The term depends on the need, purpose and paying capacity of the borrower. As such the banks abide a strict repayment structure for such loans. Like, Jack took a loan for balancing his cash flow until his customers paid him back. In such a situation Jack is bound to pay back his loan as soon as his customers make payments. Whereas, Ron borrowed to acquire inventory, here Ron would have to pay back as soon as his inventory is sold off.

There are different procedures through one may acquire short terms financing some of these have been sorted below;

Overdrafts: - Most of the Common Wealth Countries and United Kingdom offer short term lending in the way of overdrafts. Where as, in the Western European countries it is done by current account lending. An overdraft means a person can withdraw over his account within an agreed limit. Mostly, these overdrafts are charged with interest and are repayable on demand after a repayable notice has been given to the borrower. One more popular method of short term borrowing is to debit a loan account. This can be done with the borrowed amount and the credit proceeds are carried to current account. Interest for this option is charged on the total loan amount, this may extend for a limited period. Whereas studies say that in Britain such agreements are done orally.

Promissory notes/commercial paper :- It is also found that in most countries like; United States, the United Kingdom, France, Germany, and Japan this type of short term borrowing is followed on discountable documents like the promissory notes or the commercial bills. This type of borrowing does or does not require any mortgage security; this decision depends on the financial status and strength of the borrower. In case the borrower is in the condition to use his assets as collateral, then he is in the position to receive favorable terms and conditions of interest rate and a substantial borrowing amount. Usually these loans are rated with a higher overall interest; these rates are fixed and do not change or rise apparently. In the long run you find that these loans are paid back easily and quickly paying lesser interest than you would in the course of a long term loan.

Bills of exchange :- The bill of exchange, commonly referred to as the draft or the bill, is an unconditional order in writing, signed and addressed by the drawer (the exporter usually) to the drawee (the confirming bank or the issuing bank usually), requiring the drawee to pay the drawer a certain sum of money at sight or at a fixed or determinable future time.

Inventory loan :- In this agreement the inventory, stock or financed equipment of the borrower is used as the collateral for the loan. This method can be adopted by the borrower when he is in need of additional credit and payments terms for a period longer than 30 days. This is required to fulfill the gap of demand and supply of inventory for the customers.

Letters of credit :- In order to facilitate trade the trader can substitute the credit of the bank with that of the customer and accomplish their purpose for a short term. This type of letters of credit is of two types; the commercial letter of credit and the standby letter of credit.

Factoring :- This arrangement refers to the purchase of the accounts receivable by a third party. Usually, it is noticed that businesses have to wait for a month to three months for collecting their invoices for products sold or services rendered. In such situations, the business can sell its invoices at a discount by a third party or so called factor. After purchasing the invoices, the factor is responsible to collect the receivables. The advantage of factoring is that you can increase working capital by creating an additional, ongoing source of cash within a short time.

Another important section that requires these short term borrowing are the students circle. Students aspiring for higher studies usually require cash availability for education related expenses like fees, books and so on. The requirement sustains for a period until other sources open to the student.
The student must meet the following eligibility requirements to be eligible for a Short Term Loan:*

You must have a minimum accumulative GPA of 2.00 for undergraduates; 3.00 for graduate students and/or be making Satisfactory Academic Progress as defined by the Office of Student Financial Aid and Scholarships.

You must be officially registered as at least a half-time student (half time is defined as six credit hours for undergraduates and five graduate hours for graduate students).

You must have a satisfactory repayment history if you have had previous STLs. Students who have had more than two delinquent STLs or who have been turned over to a collection agency are ineligible to borrow again.

You can have no more than one STL outstanding at a time and no more than two STLs per quarter.

Your STL application must be accompanied by appropriate documentation, if required.

You must have a guaranteed source of repayment.