Best Short-Term Business Loans
Are you looking for the best short-term business loans? Find out the best short-term business loan options available to small businesses in the USA. Short term financing is fast and easy to access.
Small business owners need access to capital in order to grow and succeed. When your business is just starting out, you might not have the credit history or collateral required to secure a loan from a traditional lender. Or, you might just have a need for cash due to a large order. That’s where short-term business loans come in.
These loans are designed for small businesses that need fast and easy access to financing. In this article, we’ll review the best short-term business loan options available. We’ll also highlight some of the benefits of these loans, and provide tips on how to secure the best deal for your business. So whether you’re looking for start-up funding or want to expand your operations, read on for the best short-term business loans available right now.
What is a Short-Term Business Loan?
A short-term business loan is the financing you acquire to support a temporary business capital need. Like with other types of credit, you’ll repay an agreed-upon amount inclusive of the interest within a specified period – usually a year or two. However, the specific repayment terms vary with the loan provider.
Short-term business loans are among the most attractive financing options for startups and small businesses that don’t qualify for a bank credit line. Typically, these loans involve low amounts ranging roughly between $1,000 and $500,000.
What Type of Short-Term Loans are Available?
Below you will find a variety of options available to satisfy your business’s short-term capital needs.
Merchant Cash Advances
Merchant cash advances are an alternative financing option, that differ from a loan. The borrower receives the needed amount from the lender. They are a good option for businesses who have high salves volume, need access to capital quickly or don’t qualify for traditional bank loans.
The repayment period is typically based on the amount of capital, typically ranging from a few months to a couple of years. The repayment frequency is typically daily or weekly, depending on the agreement.
Business Lines of Credit
A business line of credit operates much like having a business credit card or a revolving loan. There’s a set credit limit, and the business can borrow as little or as much as it requires within the limit.
The business is expected to make monthly payments against the borrowed amount. As such, monthly loan payments often vary depending on how much credit the business accessed. The primary benefit from lines of credit is their usually lower annual percentage rate.
Invoice financing is another form of revolving loan. Here, a business owner borrows cash and uses pending invoices as collateral against the loan. When the borrower receives invoice payments, the lender interrupts the process. They collect the charged interest and then give back the rest to the business.
Payday loans are relatively straightforward to secure short-term emergency loans. The disadvantage is that the entire loan amount and the interest are only payable as one lump sum on the specified payday. The interest rates are extremely high, sometimes as high as 700% or more. These should be considered only as a last resort option.
How Much Does a Short-Term Business Loan Cost?
Several factors determine how much a short-term business loan costs. They include borrower credit score, lender, the interest cost, type of financing, and more. For that reason, different commercial loans tend to have annual percentage rates ranging between 3% and 50%, or sometimes more. In addition, an origination fee may also be charged to the borrower, typically 1.5% to 9% of the loan amount.
A short-term loan also often requires repayment within a few months. However, some do extend repayment up to three years. And while specific repayment terms may vary with the lending facility, most commercial loans require one year at most to clear.
What to Consider Before Applying for a Short-Term Business Loan
Again, unexpected situations do happen. These situations require cash quickly. So, the only legal and fast way to get the money you need to fix your business’ cash flow gaps is through a loan. Luckily enough, many banking institutions and private lenders offer commercial loans.
It’s important to understand the loan options available and what each associated lending party requires from you. This way, getting the most reasonable loan for you will prove easy. Before making a short-term financing application, you should consider a few essential aspects.
Type of Loan
Evaluate and determine the type of loan you require. For a business loan, lenders often request you to provide your business income statements and other important documents. Others could require you to make collateral deposits.
In most cases, traditional banks and alternative lenders also require you to disclose the loan purpose. For example, is it for equipment financing? Or, do you want a working capital loan?
The Interest Rate
Conduct a bit of research to determine which private lender or bank will loan to you at the lowest interest rate. Also, it’s important to evaluate your credit score before applying for short-term financing. That’s because your credit score influences the lender’s decision on the interest rate to charge you.
Terms of the Loan
Remember, your goal is to obtain a loan to get your business out of a financial crisis, not to remain in one. In most cases, people opt for short-term business loans to avoid the accompanying long-term interest and monthly payments. When borrowing, select a timeframe that works best for your business.
Evaluating the upfront fees is important when applying for a short-term commercial loan. Some lenders incorporate upfront charges such as underwriting fees, origination fees, administration or processing fees, appraisal fees, and credit report charges. Avoid such charges as much as possible when seeking short-term financing.
Although not often, some short-loans require you to make a down payment. The sum lies between 5% to 10% of the loan amount in most cases. Other lenders don’t request a down payment, which means they offer 100% financing. However, in this case, they are likely to charge extra interest.
Therefore, compare the down payment to the interest amount and decide on whichever works for you. You may consider checking with a broker or tax consultant to understand more about down payments.
Your credit score plays a significant role when applying for short-term business loans. So, if your credit score is poor, it’s wise to rebuild it first. Employ a professional to help assess your credit score and improve your credit statement. By doing that, you’ll enjoy access to short-term loans at significantly lower interest rates. Remember, those with a high credit score will have access to the best terms and rates. Alternatively, you can work with a lender who can accommodate those with bad credit scores.
Loan brokers could prove helpful with the short-term loan application process. After all, they know several reliable lenders who could cater to your needs. They are also familiar with the interest rates of varying lending facilities and can help you get affordable short-term business financing.
Advantages of Short-Term Business Loans
There are several advantages to short-term business loans.
Loans are Disbursed Quickly
One thing to like about short-term financing is the ability to provide working capital quickly. In most cases, the whole process takes only a few business days from start to disbursement. That’s also because short-term loan application processes tend to be faster than traditional loans.
So, short-term loans could be the best option if your business lacks the luxury of time for lengthy approval processes.
Simple Loan Application
Not only is the short-term financing application process shortened, but simple as well. Most online lenders have streamlined platforms that allow you to complete the entire process application online. Lenders typically require relatively minimal paperwork compared to SBA or long-term loans. Don’t hesitate to contact the short-term online lender you’re thinking of applying with in case of any inquiries.
Short-term business loans boast impressively high approval ratings compared to traditional bank loans. Furthermore, there is still a chance of qualifying for the loan even if your business has a poor or limited credit history.
Access to Small Loan Amounts
It’s unlikely that a lender will offer small business loans to be repaid over the long term. Therefore, short-term loans are worth your consideration if you only intend to fill temporary cash flow gaps in your business. Additionally, given small loan amounts, you’re likely to pay off such debts quickly.
Disadvantages of Short-Term Business Loans
Like everything else, short-term business loans also have their share of drawbacks.
Frequent Repayment Schedule
A majority of short-term business loans require frequent payments. And by frequent, we’re talking about making weekly payments or even daily installments. Unfortunately, most small businesses lack a consistent long-term source of revenue or have an unpredictable cash flow.
If that’s the case with your business, the frequent repayment schedule could prove problematic. As a result, it would be wise to consider other financing options with more flexible repayment schedules.
Further, you may try applying for trade credit if you can’t commit to frequent payments. While this operates differently from a typical short-term loan, it’s still an alternative short-term business financing option. It works if the supplier agrees to sell you items on credit and expects payment later.
The application process of a short-term business loan is generally more lenient than that of traditional business loans. However, it’s arguably for that reason that most lenders feature relatively higher interest rates.
In comparison to long-term loans, you might end up paying far more for a similar loan amount. If your lending facility promises a prepayment discount, try to pay off the loan early. That’s how you secure working capital at a minimal cost.
Potential for Significant Debt
Regardless of the financing option you pick, it’s undoubtedly risky to invite a business debt of any sort. Usually, you are expected to apply for financing only if you are confident you’ll repay the loan on time and in full.
If not, there’s a high chance of your business being entangled in a series of debt payments. Besides negatively affecting your credit score, such situations can also risk the future of your business.
Common Reasons for Considering a Short-Term Business Loan
Sometimes your business could suffer temporary cash flow gaps, making it difficult to meet expenses. On the other hand, maybe you have bills or accounts payable obligations you wish to meet. Whichever the case, short-term small business loans are an excellent option if you need cash for a short period of time.
Some businesses operate solely on seasonal sales and need inventory acquisition in advance. Take, for instance, a retail business selling artificial Christmas trees. Such a business could use a short-term loan to purchase inventory that will sell during the holidays.
Other reasons that could make a business consider short-term loans include:
· Marketing and advertising costs
· Launching new projects
· Emergency expenses
· Paying tax bills
· Fulfilling orders
· Maintenance or renovation
· Hiring and training employees
· Paying the business’ suppliers
Frequently Asked Questions When Considering a Short-Term Business Loan
Here are a few common questions entrepreneurs ask regarding short-term business loans.
Why Would a Business Take Out a Short-Term Business Loan?
Short-term business loans are usually funded quickly, making them an ideal go-to option during situations that require money fast. The short repayment time also appeals to many small business owners who only need funds for a short period of time.
Can You Get a Short-Term Business Loan with Bad Credit?
Yes. Short-term loans are generally accessible even to parties with a bad credit score. After all, many lack access to overdrafts or credit cards. And given how most short-term lenders hardly conduct credit checks, many people, even those without credit scores, can borrow money.
Are There Short-Term Loans for Startup Businesses?
Short-term loans for startup businesses are somewhat limited. And most only qualify for secured loans, which involve the startup business offering collateral to the lender. The firm may also have to submit extensive documentation to the lender, e.g., projected sales forecasts and cash flow statements.
Funding Your Business Is Our Business
Short-Term Business Loans in Summary
A short-term business loan comes in handy whenever your business experiences a cash-flow gap. Maybe you’re running late on paying your supplier, or you want to purchase inventory. And although it’s not the only financing option there is, short-term loans do help many businesses.
Even so, your business needs to consider all financing alternatives. After all, short-term business loans do have their downsides and may not suit all financial deficiencies. In other words, you’ll need to evaluate the specific financial situation of your business to make the right choice.
Don’t Allow a Lack of Funding
to Hold your Business Back
It’s Time To Move Your Business Forward!