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Short-Term Business Loans

If you’re dealing with a sudden cash-flow gap, you may want to address the issue with short-term business funding.

When you're making a long-term investment, you use traditional-term business funding. However, for unexpected, short-term expenses, short-term funding can be an option. short-term business financing, also known as a short-term business loan, works best with businesses with a solid financial history but need to manage a sudden cash-flow gap.

Defining Short-Term Business Loans

Illustration showing shopkeeper and customer shaking hands.

A short-term business loan is an excellent cash tool to turn to when suddenly finding yourself in a situation such as undergoing a season of slow business, building your very first startup, or striving towards an increase in cash flow. A short-term loan may bring financing to unexpected obstacles and financial needs while keeping accounts payable safe and intact. short-term business loans allow for growth, bring a chance for new opportunities, and provide reassurance that a new business will stay safe and well-protected.

A short-term business loan can even be used to create and improve a business's credit profile. This proves to be a valuable asset if a business owner chooses to pursue additional loans in the future.

Keep in mind, borrowing cash may not solve every problem that could come your way. Overall, it would be wise to review the ways your business is currently handling financial management and see if it is necessary to make any changes right now to prevent a problem in the future.

Remember that short-term business financing is meant as temporary support for financial needs. A short-term business loan is expected to be paid back within just a couple of years.

Maximum Loan Amount

Up to $250,000

Loan Term

Up to 5 years

Interest Rates

8% to 60%

Time to Funds

As soon as 7 days

How to Apply For a Short-Term Business Loan

Man applying for a small business loan on a computer.

If you receive funding, it might be transferred through a single lump-sum payment. This payment, including any interest acquired, might be expected to be paid back within two years. Traditional lenders will sometimes give the option to receive a line of credit, a predetermined amount of cash provided by a bank loan or credit union. Traditional lenders allow the possibility of only having to make a payment of interest with a principal payment.

Alternatively, suppose you're looking for a different option than traditional lenders. In that case, some companies specialize in a business's specific industry and offer specific and customized funding to a business's needs.

While searching for a short business term loan, consider a variety of imperative factors, including the current cost on the market, the interest rate of the loan, the term, any paperwork or requirements, and the period before even receiving a response from a lender after applying. You may also be asked to provide collateral with a loan application. Collateral can apply to assets such as property, equipment, or even real estate.

An application can be filled out online or in person. The cost of the funding will ultimately depend on the business prospect, the business's credit score, and your credit score.

Short-Term Funding at a Glance

Your lender will set the repayment terms and principal value of your funding for your short-term business loan. This will be based partially on your request, as well as other variables. Here are the main points:

  • Your funding amount can vary. That makes short-term business funding a solid option for companies that need a smaller dollar amount since many other small business loan or sba loan types don't go as low.
  • The term will vary by lender and situation. The term loan can be as short as three months or even as long as five years, although short-term funding options usually tend to be on the shorter side.
  • The fees for short-term business loans can fluctuate a lot based on the lender and your particular financial situation. We've seen low fees, but they can be high depending on your risk factor.

Short-term business funding is primarily for businesses with at least a two-year financial history. As long as you've been around at least that long – and have a solid financial history — there's a chance that you will qualify for this loan type. Note that short-term business funding is not the same as startup funding. If you need working capital for your new business, you should apply for startup funding instead, which does not require a long financial history. Providers of startup funding will expect you to have an impressive business model.

The Purpose of a Short-Term Business Loan

Before moving forward on applying for a short-term business loan, it's best to reflect on the purpose of your loan. In other words, why do you feel your business needs a short-term business loan? By reviewing your purpose, not only will you find yourself better prepared for composing a business plan and meeting with lenders, but you will also be able to feel even more confident with growing your business and following a journey towards brand new business opportunities and cash flow.

Reflecting upon your reasons to pursue a short-term loan will allow you to choose the terms that will be the best fit for your loan, estimate the amount of working capital that you will need, and decide on a lender.

Many exciting opportunities are about to come your way. Do all the research that you can, look at your options, make observations, outline the significant factors that should absolutely be included in your business plan, and don't be afraid to ask questions at any given point in time.

The Advantages of Short-Term Business Loans

  • If you are approved for short-term funding, you may receive funding in two business days to four weeks or longer. This type of business financing is funded faster than other business cash advances because acquiring a short-term loan is usually more urgent.
  • Traditional-term loan funding requires a lot of paperwork. That's not usually the case with short-term business funding.
  • short-term business funding may help bridge the gaps between business cash flow. Perhaps you've struggled with your business during a slow time of the year, or you're working to meet sudden demands that have popped up in your market.
  • Holiday seasons bring a great need for hiring extra help. Occasionally they can even bring a lull in cash flow.
  • Your business may require a piece of equipment that is currently heavy on your budget. There could also be a situation where an essential piece of equipment requires emergency repair, and you don't quite have the funds for it.

The Disadvantages of Short-Term Business Loans

  • Depending on your credit score and your company's financial history, you might end up with high fees when you apply for short-term business funding. A good way to estimate how high your interest rate will be is to add up the number of alternative options. If that number is low, you will likely be paying higher fees.
  • A lender might also ask you to provide collateral, for a secured loan. In some cases, the collateral would be your property. However, if the funding amount is worth more than your property, the collateral will probably need to be something else. Many business owners can also go for an unsecured business loan.
  • If using short-term business funding, you will be provided a small amount of cash due to having a short-term with which to make a payment on your loan.
  • Daily and weekly repayments can be hard to make if your business provides you with an ever-changing revenue. If you get stuck, you could find yourself falling into a debt trap.
  • short-term business loans are ultimately one of the most expensive to pay off due to the high-interest rates that they accompany. Therefore, business owners should be careful in approaching loans with high interest rates. If they aren't repaid on time, then they can bring great harm to a new business.

Alternatives to Short-Term Loans for Businesses

Woman using a calculator in her small business.

We've discussed your basic short-term business loan, but let's touch on other forms of credit that you may find yourself considering.

  • Business Line of Credit - Business lines of credit are open revolving and typically offer a longer repayment term. However, shorter terms can still be offered if the business owner wishes. With this type of short-term business loan, business owners can retrieve funds at any time (as it is an open line of credit), but there's also the option of setting a limit if the business owner or lender chooses to do so. With a business line of credit, a business owner is charged with a principal interest rate and can choose from a semi-annual or annual renewal.
  • Accounts Receivable Financing - Accounts receivable financing, or invoice financing, identifies exclusively as a cash flow loan. Invoice financing is a popular choice for business owners looking to see an increase in their cash flow as soon as possible and at a slightly quicker rate than when you'd receive funding with a traditional term loan.
  • Merchant Cash Advance - Merchant cash advances are among the most commonly used business loans, right next to accounts receivable financing. Terms of repayment are based on the business's credit or debit card sales. They are extremely expensive compared to other types of business credit.
  • Business Credit Cards – This is another source of open credit. They are very much like a personal credit card in that a business owner will receive a plastic credit card with which they will be able to make any necessary purchases their company may need. Some perks come along with having a business credit card, like rewards cards that bring value after making everyday purchases.
  • Equipment Financing - Equipment financing is designed for business owners that continuously find themselves needing to buy or lease new and used machinery or equipment. Only the bare minimum of paperwork needs to be done to apply for this loan.

Short-Term Business Funding Wrap-Up

Short-term business funding is not just for financial emergencies. A short-term funding option can be a viable solution if you don't want to pass on a great business deal but lack the cash to make it happen. short-term business funding can work for any company that's willing to pay higher fees to get relatively fast access to working capital.

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