A Guide to Short-Term Business Loans for Small Businesses

With a shorter payback period—usually less than a year to 18 months—short-term business loans operate identically to other term loans. Although the majority of standard term loans have durations ranging from 7 to 25 years and accumulate interest over time, certain lenders, such as Biz2Credit, provide maturities as short as three years. For company owners that want rapid finance for essential reasons, such covering a seasonal decline in sales, paying for urgent bills, or seizing an opportunity, short-term loans are perfect. Especially with internet lenders, these loans can have quicker approval times—up to 24 hours. Traditional loans, on the other hand, might take a maximum of thirty days to process. There are two types of short-term loans: unsecured, which have higher interest rates because of the greater risk, and secured, which need collateral. Repayment periods are shorter, but the interest rates tend to be higher than those of long-term loans. Check here for Short Term Business Loans

Types of Short-Term Loans:

1. Term Loan: A one-time large sum of loan with a fixed repayment schedule.
2. Business Credit Card: identical to personal credit cards, this type of loan offer revolving credit for regular expenses.
3. Business Line of Credit: Provides access to an amount which is limited based on the goodwill of the company with interest charged only on the amount used.
4. Merchant Cash Advance (MCA): A large amount of money repaid through a percentage of future sales, based on a factor rate.
5. Invoice Factoring and Financing: Both involve leveraging outstanding invoices for immediate cash—factoring sells invoices to a third party, while financing borrows against them.

Why Choose a Short-Term Loan?

Short-term loans are ideal for companies which require quick cash for specific situations, such as small extensions, unexpected costs, buying new equipment, marketing campaigns, or managing seasonal downturns. Unlike long-term loans, short-term financing prevents extended debt and offers faster payment in full. However, common payment schedules (sometimes weekly or daily) and higher rates of interest can be drawbacks, and these loans typically have fewer resources than conventional loans.

What is the process to Apply for a Short-Term Business Loan?

1. Evaluate Your Need: Determine if the loan is to meet ongoing expenditures, support a one-time purchase, or solve cash flow shortfalls. Choosing the appropriate loan type—such as a company line of credit for recurring requirements or a term loan for a bigger sum—can help you choose your repayment plan.

2. Calculate the amount. Only borrow what you can easily repay. Consider working with an accountant to budget the loan amount for specific goals and factor in interest to estimate overall repayment expenses.

3. Research Lenders: Each lender offers unique terms and interest rates. To locate the best match for your needs, conduct research and comparisons that take into account internet ratings and interest rates.

4. Submit Your Application: Once you’ve found a lender, the application process is straightforward. Many lenders require basic financial documentation and a minimum credit score (generally 525 for MCAs, 580 for credit lines, and 660 for term loans). A positive cash flow and annual revenue above $250,000 can also support your application.