{"id":20157,"date":"2018-09-25T02:17:21","date_gmt":"2018-09-25T02:17:21","guid":{"rendered":"https:\/\/www.credibly.com\/guides\/short-term-business-loans\/"},"modified":"2025-01-24T02:00:38","modified_gmt":"2025-01-24T02:00:38","slug":"short-term-business-loans","status":"publish","type":"page","link":"https:\/\/www.credibly.com\/guides\/short-term-business-loans\/","title":{"rendered":"Short-Term Business Loans"},"content":{"rendered":"\t\t
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Flexible, fast, and affordable, short-term business loans are a vital lifeline for America\u2019s small businesses (the average small business loan amount hovers around $70,000). Why?<\/p>\n

No matter how hard you try to plan ahead, unexpected business expenses can happen to even the most organized small business owner. A piece of equipment that\u2019s vital to your operations might break. You might suddenly need more inventory to fulfill a very large order that came in unexpectedly. Maybe you need a little extra working capital to pay your employees while you wait for customers to pay their invoices.<\/p>\n

In any case, you need some extra money and you need it right away. It\u2019s times like these when many business owners turn to short-term business loans.<\/p>\n

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Short-Term Business Lenders Aren\u2019t Created Equal<\/strong><\/p>\r\n

Don\u2019t forget to check these 6 things before you apply for financing<\/p>\r\n Read More<\/a>\r\n<\/div>\n

What Is a Short-Term Business Loan?<\/h2>\n

A short-term business loan is a business loan<\/a> that\u2019s intended to be paid off much faster than a regular business loan.<\/p>\n

While longer-term loans from a traditional bank or lender can take several years or decades to be paid off, short-term business loans are often paid off in a matter of months, although some can last 18-24 months (or more). Exact repayment terms will vary, but most short-term business loans last for one year or less.<\/p>\n

Short-term commercial loans are often used to help small business owners cover temporary cash flow gaps<\/a>. Seasonal businesses are particularly prone to inconsistent cash flow and make a large portion of their annual revenue in a short period (such as the summer).<\/p>\n

These businesses may benefit from a short-term loan that provides cash upfront without the longer-term debt of traditional financing options, such as bank loans or SBA loans.<\/p>\n

The Best Types of Short-Term Business Loans<\/h2>\n

Line of Credit<\/h3>\n

This is a flexible loan that provides businesses with access to a fixed amount of money, which can be used when needed. Interest is only paid on the amount used, making it a cost-effective solution for many businesses.<\/p>\n

Invoice Financing<\/h3>\n

This loan type allows businesses to borrow money against outstanding invoices. This can be a great option for businesses with a lot of unpaid invoices, needing to smooth over cash flow.<\/p>\n

Merchant Cash Advance<\/h3>\n

While not technically a loan, a merchant cash advance allows a business to sell a portion of their future credit card sales for a lump-sum advance to a buyer. The business must then remit a portion of their future receivables to that buyer on a daily or weekly basis.<\/p>\n

Short-Term Loan<\/h3>\n

These loans are typically for a year or less and are best for businesses needing quick, temporary cash flow. They often have higher interest rates but can be approved quickly.<\/p>\n

Equipment Financing<\/h3>\n

This type of loan is specifically for businesses that need to purchase or upgrade equipment. The equipment itself acts as collateral, which can make these loans easier to obtain.<\/p>\n

\"Short<\/p>\n

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How Do Short-Term Business Loans Work?<\/h2>\n

Short-term business loans are a type of financing designed to provide quick cash flow to businesses in need. These loans typically have terms that are around a year and a half or less, and they can be great tools for handling unexpected expenses or capitalizing on sudden opportunities.<\/p>\n

When a business applies for a short-term loan, it typically goes through an online application process that can take just a few minutes.<\/p>\n

After the application is submitted, approval can often be secured rapidly – sometimes even on the same day the application is placed. This is one of the main advantages of short-term loans: they allow businesses to get the funds they need very quickly.<\/p>\n

Once the loan is approved and the funds are received, the business is required to start making payments. Unlike other types of loans, the repayment schedule for short-term loans can be quite frequent. This could be as often as once a week, or in some cases, every business day.<\/p>\n

While the frequency of the repayment schedule might be burdensome for some businesses, it can also mean paying less in interest and fees overall, and the chance to improve a bad credit rating.<\/p>\n

Pros and Cons of Short-Term Business Loans<\/h2>\n

\"Short-Term<\/p>\n

Short-term small business loans can help business owners survive a tough time or seasonal slump in revenue, but there are some cons to consider as well. Here\u2019s what to know about short-term business loans.<\/p>\n

Pros of Short-Term Business Loans<\/h2>\n

Faster, Easier Application Process<\/h4>\n

Short-term business loans offer a much faster and easier application process than regular business loans. Applying for a business loan through a bank involves filling out extensive paperwork and having to wait weeks or months to be approved and receive the funds. When business owners are facing a sudden, unexpected expense, applying for a traditional business loan simply might not be a viable option.<\/p>\n

Lower Eligibility Requirements<\/h4>\n

Short-term loan lenders offer, typically, more relaxed requirements for short-term business loans, making it easier for businesses that don\u2019t meet the qualifying criteria for a long-term business loan to receive financing. This can be especially helpful if you have a lacking credit history or don\u2019t meet the credit score requirement for other loans.<\/p>\n

Flexible Loan Amounts (and Lower Costs)<\/h4>\n

Short-term loans are also an option for business owners who need to borrow a relatively small amount of money. In many cases, business owners are turned down for traditional business loans because they aren\u2019t seeking loans large enough to generate enough of a profit for the lender (and, frankly, you\u2019ll be better off not paying the hefty prepayment penalties for paying off your loan early).<\/p>\n

\"Best<\/p>\n

Pay It Off Fast<\/h4>\n

Some business owners use short-term business financing specifically because it\u2019s short-term in nature. Since many business owners only need funding to get over temporary financial hurdles, they don\u2019t like the idea of being stuck paying off a loan years after the original need for that funding has passed.<\/p>\n

Improve Your Credit Score<\/h4>\n

Small, short-term business loans can also be used to improve your business credit score<\/a>. As you make progress on paying off a short-term loan, your regular payments will be reflected on your credit score. With an improved credit score, you\u2019ll have an easier time qualifying for larger business loans with better terms later on if needed.<\/p>\n

Cons of Short-Term Business Loans<\/h2>\n

The biggest downside to short-term financing is higher short-term business loan rates (and possibly origination fees) than regular business loans. Because of the fact that these loans have shorter terms, you\u2019ll need to make larger, more frequent payments, sometimes on a daily or weekly basis.<\/p>\n

Although collateral<\/strong> is often not required for short-term loans, some short-term loan lenders ask for collateral, especially for equipment loans and other collateral loans.<\/p>\n

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Learn More About Short-Term Business Loans and Financing<\/b><\/p>\n

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  1. How to Get a Small Business Loan: Complete Guide<\/a><\/li>\n
  2. How Hard Is It to Get a Business Loan?<\/a><\/li>\n
  3. Business Loans for Contractors<\/a><\/li>\n
  4. Roofing Business Loan Options to Consider<\/a><\/li>\n
  5. Commercial Loans for Business Growth: The Pros and Cons<\/a><\/li>
  6. Business Loans in Michigan<\/a><\/li>\n<\/ol>\n

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    Uses for Short-Term Business Loans<\/h2>\n

    Funds from short-term commercial loans can be used for many different purposes, including:<\/p>\n