Overview Of Short-Term Business Loans
Usually, short-term loans are used to manage cash flow, emergencies or surprise opportunities. A short-term loan enables small businesses to fund short term capital needs. Typically, such loans have term lengths of a maximum of 18 months. But on average they are usually for a year.
Compared to other business-related financing options, short-term loans have high-interest rates. And offer lesser loan amounts. But unlike other loans, short-term loans are usually available through online lenders and are, thus, easy to obtain. This way the application process is shorter. And doesn't have too many requirements. Even the requirements that are there are very flexible.
Short-Term Business Loan Details
There are a variety of short-term business loans available for small businesses. So, any of them can be the right type for you and your business. We have listed down the pros and cons of a short-term loan for you. So, it can help you decide whether short term loans will benefit you and your business.
- Not much paperwork for application – Because online and alternative lenders usually issue short term loans and the application process is very simple and quick
- Straightforward payment structure – While there may be some differences within short term loans but generally their terms, rates, and payment schedule are around the same. They are easy to understand plus even loan payments are often fixed for the entire loan duration although there may be some additional fees depending on your lender's terms
- Quick funding – Since the application process is very quick and easy, sometimes your loan might get approved as soon as you apply
- Comparatively more flexible – SBA and bank loans require a near-perfect credit score and multiple years in business while short-term business loans have more flexibility as they don't have strict requirements or discriminate against startups and businesses with bad credit scores
- Suitable for a range of purposes – While most business financing is for specific purposes short term loans can be used for all kinds of industries and businesses of all shapes and sizes
- Higher interest rate – It is often more expensive to receive fast funding due to fast and flexible applications with lower requirements as lenders usually charge higher interest rates to reduce their risk so while It may be an ideal choice for startups and businesses with bad credit scores it can end up more expensive because of the interest
- Daily or weekly repayment schedule – Most business financing and loans have a monthly repayment schedule but short-term loans usually have a daily or weekly schedule and while this can help you pay off your debt faster it can also impact your cash flow because of the frequent payments
The Best Short-Term Loan Lenders
After going through the pros and cons of short-term business loans do you feel that it is the best option for you and your business? you may be wondering where to find a reliable lender.
While a bank would be your best option it’s not easy to get a bank loan. To help, we have put together a shortlist of the best short-term loan lenders. If you still haven't found what you're looking for then check these options.
Interest rate:Between 9.99 and 99%
Term Length:3-36 Months
Qualifications:$100,000 annual revenue, one year in business, a credit score of 600
Best suited forFast funding for a large amount and a simple application
Interest rate:1.15 to 1.45 factor rate
Term Length:6-18 months
Qualifications:$15,000 monthly revenue, 6 months in business, a credit score of 500
Best suited forStartups with a low credit score or short-term loans for expansion or working capital
Interest rate:1.1 to 1.3 factor rate
Term Length:Maximum 15 months
Qualifications:$12,000 monthly gross sales, 6 months of business
Best suited forQuick funding for startups and businesses with low credit scores
Amount:Upto $1 million
Interest rate:1.16 to 1.3 factor rate
Term Length:3-60 months
Qualifications:$120,000 annual revenue, 2 years in business, a credit score of 550
Best suited for:Businesses with a low credit score looking for large amounts
Interest rate:Depends on your qualifications
Term Length:6-18 months
Qualifications:$15,000 monthly revenue, 2 years in business, a credit score of 650
Best suited forQuick funding for higher qualified businesses
How Do Short Term Business Loans Work?
Short-term loans are similar to small business loans in the way they are structured. You receive a certain amount of capital agreed on previously along with the interest rates, lender's fees and loan terms. And since these types of loans are usually needed urgently so online lenders are the best option.
Types Of Short Term Business Loans
- Business line of credit: Different from a traditional loan this type of short term loan allows you to withdraw a specific amount of capital whenever you want and you only have to pay interest for the amount you have borrowed, so this is one of the most flexible methods of business financing
- Invoice financing: With this type of financing, you receive an amount of capital in advance secured by your unpaid invoices as lenders usually offer 85% of the invoice value and the remaining (minus the lenders' fees) is paid after you receive the payment from the customers so this type of business loan is best for B2B and service businesses with cash flow issues
- Merchant cash advance: Through merchant cash advance loans a company sets an amount of capital in return for a certain percentage of your credit or debit card sales and this way you can pay back your loans on a weekly or daily basis but while it may allow you to repay your debt based on sales and its APRs can reach over 100% making it the most expensive type of financing
How To Get A Short Term Business Loan
How To Qualify For A Short Term Loan
The requirements will vary depending on the type of short-term loan you're going for and who your lender is. However, the general standard is to have a credit score of at least 600, annual revenue of $100,000 and a minimum of one year in business. Of course, there may be lenders with more relaxed requirements and some would have stricter ones. However, this is just an approximation.
Apply For A Short Term Loan
If you think you can qualify for a short-term loan the next step is to apply for one. And while the application will be easier than other kinds of loans you will still need some documentation. Some common requirements include:
- Basic ID documentation for you and your business
- Bank statements
- Financial statements
- Tax returns
- Credit scores
- Personal guarantee
The Bottom Line
If you're a small business owner and you're looking for quick funding then you should consider a short-term business loan. Even though these loans have a higher interest rate, they offer flexibility and an easy application process – which is perfect for emergencies. Explore your options to see whether this is the best option for you and your business.