A Guide to Short-Term Business Loans for Small Businesses
August 27, 2024 | Last Updated on: August 30, 2024
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August 27, 2024 | Last Updated on: August 30, 2024
Disclaimer: Information in the Business Financing Blog is provided for general information only, does not constitute financial advice, and does not necessarily describe Biz2Credit commercial financing products. In fact, information in the Business Financing Blog often covers financial products that Biz2Credit does not currently offer.
Even when they have financing needs, many small business owners prefer not to take on debt. After all, you’re trying to make money, not owe it. Still, sometimes you need a financing solution. Rather than get a large small business loan from a bank, some small business owners instead use short-term business loans to get a quick influx of cash.
Short-term business loans can be a great asset for small businesses that need a little capital to get started or grow but don’t want significant long-term debt. These loans may have repayment terms as short as 18 months and very short turnaround times.
Takeaways:
In this article:
Short-term business loans are like any other term loan, except that they have a much shorter repayment period. While Biz2Credit offers short-term loans with repayment periods of up to three years, usually the repayment period ranges from less than a year to about 18 months. Traditional term loans, on the other hand, usually have repayment periods of 7-25 years, which will rack up a tremendous amount of interest over time.
Short-term business loans typically have much faster processing times than traditional business loans, which may take up to a month for approval. Short-term loans may be approved in a few business days, or as little as 24 hours with Biz2Credit.
While the loan terms are different, the main reason a small business owner may opt for a short-term loan over a long-term one is that they need money fast. They may have had an accident at a factory that caused a production backlog, need funds to keep the business afloat through a seasonal downturn, or must respond to a big increase in demand. Long-term needs tend to be more focused on overall business expansion or a significant acquisition.
Common types of short-term loans include:
Short-term business loans function like most other types of business loans, albeit with a streamlined application process. A small business owner applies for a specified amount of money, the lender reviews the application, approves (or denies) it, underwrites the loan, and once all parties have agreed to the repayment terms, the lenders distributes the funds.
Online lenders, like Biz2Credit, can process online applications and distribute funds much faster than traditional lenders like banks. Some qualified borrowers may receive a funding decision the same day they apply.
Depending on the lender and your particular situation, you may get a secured or unsecured loan. A secured loan is one in which you provide business collateral or a personal guarantee upfront to ensure the loan will be paid back. If you fail to repay the loan, the lender can repossess that collateral or place a lien on your business until you repay the debt (plus penalties). An unsecured loan has no such collateral and, since it’s a greater risk for the lender, typically has higher interest rates.
Because they’re meant to be paid back so quickly, short-term loans tend to have higher interest rates. That’s the trade-off. You’ll make payments for a shorter period of time than you would with a long-term business loan, but the interest on those payments may be higher.
There are many reasons why a business owner may seek a short-term business loan. Since they offer fast funding, they’re particularly useful for businesses that need a little money to get through a bump in the road. Some of the most common reasons include:
Getting a short-term business loan is usually easier than applying for a long-term conventional loan or a U.S. Small Business Administration (SBA) loan. The process is straightforward.
First off, figure out why you actually need a loan. It may be to cover emergency expenses, take advantage of a business opportunity, or something else entirely. Knowing why you need the money can help you figure out what type of loan you need.
For instance, you can’t pay employees’ salaries with a business credit card, but you can do so by drawing from a business line of credit. Likewise, if pay day is coming up and your business bank account is looking a little tight, you could use invoice factoring or invoice financing to get the cash you need now based on the value of your company’s outstanding invoices.
By evaluating the need and how you’ll use the money, you can also determine a reasonable repayment strategy. If you want something you can actively use and pay back as you go, a business credit card or line of credit may be the answer. But if you want a larger lump sum now to buy an essential piece of equipment and are willing to pay it back over the next 18 months or so, a term loan may better suit your needs.
One of the primary benefits of a short-term business loan is that you can pay it back quickly. So, don’t borrow so much that making payments will be a burden.
Again, if you need some working capital to draw on or act as a safety net regularly, a business line of credit or business credit card with a $10,000 limit may get the job done. If you have a specific plan for the money, take some time with an accountant to figure out exactly how you will budget a loan amount to achieve your goals.
Never borrow more than you can afford to pay back in a timely manner and make sure you understand how the interest rate will impact how much you actually end up paying back to the lender.
As we’ve touched on before, different lenders may offer very different interest rates. They may have different repayment terms or restrictions on how you use the money. On the one hand, there are many online lenders out there today, including Biz2Credit. On the other, so much choice can be overwhelming.
Take the time to research lenders and their loan offers, read reviews, and check out their published interest rates. You can always get in contact with a loan servicer to ask more specific questions, too.
When you understand your needs and have found the right lender for you, it’s time to apply. Most lenders allow you to apply online in just a few minutes. Different lenders and types of loans may have more or less stringent eligibility requirements, but usually what you need to qualify is:
Small businesses have access to many types of business funding. However, not all businesses want to take on a lot of debt for many years. Businesses with specific short-term goals or more immediate cash flow needs may benefit from short-term financing. These loans offer fast access to cash and have shorter repayment terms than conventional loans, making them great loan options for debt-averse entrepreneurs who nonetheless need business financing. As business needs change and evolve over time, it’s a good idea for small business owners to proactively evaluate their situations to see if they can benefit from a short-term business loan.
A short-term business loan is any type of loan that carries a repayment period of less than three years. Some common types of short-term business loans include business lines of credit, merchant cash advances, or simply term loans with short repayment periods.
Short-term business loans are good financing options for small business owners who don’t want to stay in debt for long. Whether a small business needs money to navigate a seasonal downturn, respond to a business emergency, or meet an unexpected surge in demand, a short-term loan can help.
A short-term business loan may have a repayment term as long as three years, but most must be repaid within 18 months.
There are many short-term lenders available online, each with different loan agreement terms and practices. To qualify for a loan, you’ll need to provide some information about your business, your personal credit score, and potentially some small business financial statements.
Applying with Biz2Credit for a short-term business loan or other financing is quick. If you are approved, you can get the funds in your bank account online in about 24 to 72 hours, depending on your bank’s business hours.