Looking for a flexible, handy and easy to attain small business financing? Well, look no further than short-term business loans. In this guide, we will let you know everything you need to know about short-term business loans and how you can get one.
What is a short-term business loan?
In short-term business loans, businesses can borrow a set amount of money that they have to repay, with interest, at regular intervals. This short-term financing is designed to repay much more quickly than other types of loans, often within 3 to 12 months. Short-term business loans are versatile, with amounts ranging from $2.5K to 250K, while a larger amount is likely possible with a secured loan.
Due to the shorter loan terms, it’s easy to apply and qualify for a short-term business loan. It just takes a few clicks on your laptop or mobile to apply, will transfer to your bank account in as few as one day.
This handy and flexible small business funding can be used for a variety of financing short term needs – including purchasing new equipment, managing cash flow, expanding your business, stock purchases, finance a short-term project, paying off expensive debt or even capitalize on a new business opportunity.
Traditional lenders, such as banks, typically elude giving short-term loans. However, there are a few alternative lenders, like OnDeck, that offer short-term loans to meet a variety of small business use cases. Some business owners who have long-lasting relationships with their banks sometimes may succeed in getting a short-term loan.
Features of Short-Term Business Loans
Can be either secured or unsecured. You’ll benefit from lower interest rates with the former while have to put up collateral with the later.
3 to 12 months
Usually ranges from 1.1 to1.5 percent
Hassle-free loans approve within 24 hours
Since the amount of risk is lower, lenders are willing to offer short-term business loans more often than long-term loans. If you’re in the business for a while and have healthy, consistent cash flow, you have no trouble getting the loan. However, if you’ve just started your business and are not in a strong position to grow, you may have a particularly tough time getting your application approved.
You should also know that the amount you can borrow and the interest rate you’ll pay will depend on the type of business you operate, annual turnover, business history and overall health of your business.
Though qualifying for a traditional term loan involves a few different factors, the following are some that matter the most:
Have been in the business for two years or more
Must have a minimum credit score of 500
$100,000+ in annual revenue for your business
Must have healthy, consistent cash flow
Besides that, you may need to provide some evidence of your business’ recent performance, such as several months of bank statements. You should also be prepared to provide a record of positive daily bank balance.
While these above factors play an important role in getting a short-term business loan for your small business, it’s not the only thing considered when making approval decisions. Depending on the lender, there are many different things that can affect your eligibility. So, it’s vital to discuss your requirements with your lender and determine what works best for your small business.
How to Apply For a Short-Term Business Loan?
Well, look no further than short-term business loans. In this guide, we will let you know everything you need to know about short-term business loans.
Applying for short-term loans online is one of the smartest ways to get approved and only take a few clicks on your laptop or smartphone. Online lenders such as OnDeck approve your loan in just a day or two after you apply, helping you obtain fast business finance.
When applying for a short-term business loan, be clear with your calculation of how much you need and how much you can afford to repay.
Go for alternative financing options before heading straight to the bank. Also, make sure that you have a positive cash flow and a healthy daily bank balance.
Documents you need before applying:
- Driver’s License
- Credit Card Processing Statements
- Bank Statements
- Voided Business Check
- Credit Score
- Business Tax Returns
Why Consider a Short-Term Business Loan?
A Short-term business loan is the best financing strategy for small business owners who are in need of a quick cash injection. Though this sought-after lending option has a lot of perks, however the most obvious benefit of a short-term loan is that it can provide you with fast capital for your operations. In addition, the documentation and application process is easy and fast than that of a traditional bank loan. This can be extremely useful if you haven’t received a customer payment yet, are looking to buy more inventory, or want to improve issues with cash flow.
Advantages of short-term loans every small business owner needs to know
- You should receive your fund quickly – take not more than 24 to 48 hours
- The application process is simple – require less paperwork and the application can usually be completed online
- Due to its shorter repayment period, you pay less interest
- You can improve your credit score by giving payments on time
- These loans are flexible and can be used for virtually any business purposes
- Even if you have bad credit, you can apply
Why You Need a Short-Term Loan For Your Small Business?
Whether slow processes are holding your business back or outdated equipment is braking productivity, you can use a short-term loan for nearly any purpose as a small business owner. You might think of using a short-term business loan if you’re:
- A seasonal business that needs capital to prepare for the busy season
- Looking to buy new technology or equipment or inventory
- Planning to launch a new product
- About to expand into a new market
- In need of capital to meet the immediate demands of payroll
- Looking to hire and train employees
- In need of extra money to market your products or services
- Preparing for upcoming tax season
- Refinancing other short-term debts at more favorable terms
How does a Short-Term Business Loan Work?
Short-term business loans work as traditional term loans. There are several types of short-term loans, but in most cases, the fundamentals are almost the same.
You are given a set amount of money upfront by the lender that you agree on a term to pay it back in full, along with the interest and lender’s fee.
Once you agree on the amount you can afford to borrow with your lender, the lender will usually carry out a credit check to assess the financial health of your company. If your loan application successfully meets the lender’s short-term loan criteria, you receive your loan. You begin making repayments on the agreed date until the loan is repaid in full.
As the repayment period shorter, the loan amount may be smaller, interest rates higher, and you often have to pay back on a daily or weekly instead of a monthly schedule.
Though these loans faster to apply and easier to get, always keep in mind that they are one of the most expensive small business financing options available on the market.
But why short-term business loans cost more?
In short, you’re paying the price for speed and convenience. The short repayment period and higher rates generally offer less paperwork and faster funding times than many other types of small business loans.
How Much Does a Short-Term Loan Cost To Businesses?
Short-term financing is designed for speed, rather than long-term usage. And you’ll pay for shorter repayment periods, lower principal amounts and higher rates. These small business loans often come with factor rates instead of interest rates. A factor rate is a percentage that shows how much extra you owe on a loan. Unlike an interest rate, the factor rate is expressed in decimal figures.
A bit confused?
Don’t fret – let’s explain with an example.
Let’s you borrow $100K and the factor rate is 1.31, multiply two numbers together will show the exact amount of money you’ll have to pay back on the loan i.e $1,310K. Isn’t it a piece of cake?
If the repayment period is of 12 months and you have to repay the amount every week, that’s 48 payments you’d have to make.
That means you’ll have to pay 27291.6 each week.
Get prequalified financing options from SME lenders in a simple and quick process that takes less than 2 minutes. Any business operating in the USA and Canada may qualify. No credit check and no fee is charged to provide funding quotes. Sign up with PayPie and compare offers to inject cash in the bank.
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