Short-term business loans can be a great option when you need money to cover a short-term expense.
These loans are typically for a shorter duration than traditional term loans, and they come with lower interest rates. However, it’s important to understand the different types available and the pros and cons of each before you apply.
Whatever the reason, you won’t find a shortage of lenders. But, how do you choose the best one? Let’s take a closer look at this ultimate guide to short-term financing.
What Are Short-Term Small Business Loans, and How Do They Work?
A short-term loan for small businesses is a form of financing that will help owners access capital to cover various expenses.
As their name indicates, you repay them over a short period of time (usually no longer than 18 months). As such, the loan amounts are generally smaller.
These loans for small businesses work very similarly to other types of business loans:
- They give applicants access to a set amount of cash in return for interest (and potentially fees).
- You make payments regularly (daily, weekly or monthly), with penalties for being late on those repayments.
The short-term loan interest rates are typically higher than other traditional lending products. In many cases, this is because applicants often have less than stellar credit scores or urgently need the funds.
Who Should Get Small Business Short-Term Loans?
Short-term business loans would only provide a temporary Band-aid and not an ultimate fix.
A short-term business loan could really be a good fit for any business owner.
The more relevant thing to consider before applying for one is whether this type of loan could best solve your situation.
For example, if you find yourself constantly behind on your bills, then a short-term loan will probably not solve your problem. Instead, this is a long-term issue that should necessitate a re-evaluation of your finances.
If you don’t have any other options to fund your expenses, and if you can meet the requirements, then these business loans could be an excellent fit for you.
What Are the Most Common Reasons to Get a Short-Term Loan?
There are many reasons why you might seek short-term business loans.
Cashflow interruptions are one of the most common reasons to get such a loan. This could be because of unexpected dips in sales or the seasonality of your business.
If you’re facing personal or business-related emergency expenses, these loans could be a good solution.
But, it’s not all for negative reasons, either.
These loans could help you capitalize on a business opportunity that you can’t pass up but just don’t have the cash on hand to fund right now.
The fact that you could get approved and get the funding quickly could help you not miss out on a golden opportunity.
The Different Types of Short-Term Business Loans
There are a few common types of business loans short-term, which include:
Line of credit
This type of financing allows you to access cash when you need it. The lender will approve you for a set amount that you can draw down from and use whenever you need it.
In this way, it works like a business credit card but with typically higher available balances. In addition, you’ll only pay interest on the amount you draw down to use, not the credit limit.
This type of financing gives you a lump sum of cash upfront that you can use for almost any business expense. You’ll have repayments that will occur regularly. Some are monthly, while others are bi-weekly, weekly, or even daily. You’ll accrue interest as soon as the loan begins.
You sell your outstanding invoices to a financing company to get quick cash. In this instance, the company would pay you upfront about 70% of the value of your invoices. They would then be responsible for collecting the outstanding invoice and keeping the full amount.
Some consider credit cards short-term loans too.
How Much Can a Short-Term Business Loan Cost?
One of the potential downsides to this type of financing is that it can be expensive, especially if you’re applying for short-term business loans with bad credit.
While you’ll have a higher likelihood of getting approved for these loans and getting your money fast, it might not come cheap.
Some lenders will charge very high-interest rates on these loans.
While some of these products may have interest rates in the single digits, many often are in the double digits, with some even hitting the triple digits. This is a high price to pay for a loan.
Another thing to pay attention to is whether the lender charges any additional fees.
- Some are sneaky and charge a monthly processing fee for every repayment you make.
- Others charge a fee for paying your loan early.
- And some will charge an origination fee that could add 10% or so on top of the total loan cost.
The Benefits of Using a Short-Term Loan to Finance Your Business
Short-term business loans provide many benefits.
One of the most significant advantages is that they provide you with funding quickly.
For example, it won’t take you long to apply for these loans, and upon approval, you’ll typically get your money deposited into your account in just a day or so.
The short-term loan market is very much alive and well, with many companies turning to this as a solution for their cash flow gaps.
The application process is usually straightforward and streamlined, and lenders typically approve many applicants. The requirements for getting approved are often more lenient, in other words.
If you repay your loans on time, you could easily boost your credit. This is great for people who have poor credit or don’t have a long credit history.
When to Consider Short-Term Business Loans?
There are a few situations where you should consider short-term loans for small businesses.
1. The first is if you are short on cash.
This could happen because your business is unexpectedly behind on collections or if your business experiences significant seasonality.
2. The second is if you’ve incurred an emergency expense.
This could be a significant and urgent problem regarding your business building, vehicles, or equipment.
3. The third is if you have a business opportunity that you need to jump on fast but didn’t plan and save for it.
In these situations, getting the necessary cash now could significantly outweigh the costs of the short-term business loans. In the long run, you could find yourself way ahead.
When to Avoid Short-term Business Loans?
Alternatively, there are some situations where you should avoid these kinds of small business loans.
If you’re having trouble consistently paying your bills each month or having a cash flow gap, then a business loan short-term is not likely to solve that problem.
Instead, you should probably conduct a deep dive into your financial situation and re-work your budget.
If the interest rate is too high, the cost of the short-term business loan may not be worth the cash you could get. The interest rates and fees on some of these loans could total thousands.
Some short-term loans require you to repay the loan weekly. If this would significantly hamper your cash flow, you might want to avoid this type of loan.
And ultimately, if the short-term business loans would just be a temporary fix to a problem that is likely to rear its ugly head again, avoid this type of loan.
As mentioned before, short-term business loans are not problem solvers but tools you can use to your advantage in certain situations.
You can also access long-term business loans.
How to Choose the Right Short-Term Loan for Your Business
Any time you are considering applying for a loan, you should research several lenders no matter what the type.
Only choose reputable lenders who have a history of doing good for their customers. You can check out their reviews online and with the Better Business Bureau.
Once you’ve narrowed your list of potential lenders, check out the full details of the loan products.
Look at the repayment schedule, the fees and interest charged, and any other terms.
Ultimately, you’re looking for the best loan product that will cost you the least amount of money in the end.
You should also make sure you can meet the minimum requirements. It’s no use to apply for loans where you won’t receive approval.
Best Short-Term Business Loans
Here are some of the best short term lenders:
At Camino Financial, we offer several great loan products that you can use to invest in your business.
Our Solopreneur loan is the perfect short-term business loan.
- You can get from $1,500 to $7,500
- The loan’s repayment terms range from 12 to 36 months
- There’s no minimum time in business requirement
- We offer fixed monthly payments
- You don’t have to put up collateral
- There’s no early repayment fee
We offer a quick application and approval process with minimal requirements, fast funding, and favorable loan terms.
This online bank offers various financial products that could be good for you.
They offer lines of credit up to $150,000 for businesses.
You must be in business for at least a year, though, and they have minimum requirements for revenue.
This lender offers loans for business owners who have bad credit.
Their loans are available for up to $1 million and have many different repayment options.
They have a high revenue requirement, as well as frequent repayments required.
Average Short Term Business Loan Interest Rates
The interest rates these lenders charge are normally based on minimum years in business, credit score, and annual revenue.
But these are the average rates by type of lender:
- Small Business Administration: 5.50% to 8%
- Online Lenders: 4% to 35.99% or higher
- Banks: 2.54% to 7.02%
- Credit Unions: Average of 5%
- Line of Credit: 10% to 99%
- Merchant cash advance: 40% to 350%
Factors that affect short term business loans interest rate
Type of Lender
- Where you get a short-term loan affects the interest rate you receive.
- Traditional banks and credit union loans have lower percentage rates ranging from 3% to 7% compared to online lender rates of 11% to 44%.
- You can expect to pay even higher rates for invoice factoring or a line of credit.
Number of Years in Business
When a lender looks at your application, most want to know how long you’ve operated your business. They are more comfortable offering a loan to borrowers that have been in business for one to two years.
A financial history of a business helps lenders to determine whether a borrower can take on more debt. For this reason, the number of years in business directly affects the interest rate a lender charges.
Lenders feel more confident loaning money to borrowers with good to excellent credit scores. A positive credit profile indicates that a person pays bills and repays loans on time.
They look at both personal and business credit scores to obtain a full picture of someone’s historical record of financial transactions with creditors.
Lenders charge higher rates to borrowers with lower credit scores and vice versa.
A lender looks at how much a business earns each year and corresponding business expenses to determine if there’s sufficient income to repay a loan.
They look at your financial statements to see how much income flows into your business and the number of expenditures that flow out.
By reviewing this information, lenders can determine how much revenue your business needs to generate to qualify for a specific loan amount.
How to Qualify for a Short-Term Loan
It’s very easy to apply for a short-term business loan with Camino Financial.
- First, you’ll fill out an easy online application that will include your basic personal information and that of your business.
- Usually, immediately after submitting the form, we’ll notify you of a prequalified decision.
- We may need you to upload some supporting documentation about your business or your financial records so we can approve you.
- Then, we’ll extend you short-term loans for business. All you have to do is accept the offer and sign for it.
- Then, you’ll have your money directly deposited into your business bank account.
There may come a time when you need to apply for a short-term loan to get you through an unexpected financial situation. If you do, don’t worry; you certainly aren’t alone.
Many small business owners like yourself find themselves in need of cash from time to time, and they may need it fast. Traditional lenders are not an answer.
If you need this cash quickly, one of the best places you can turn is a small business loan through Camino Financial.
We work hard every day to live up to our motto of “No Business Left Behind.” We do this with outstanding financial products and educational resources geared toward small business owners like yourself.
Apply for a small business loan today, and find out how we can help you vault your business to the next level.
What is a short-term business loan?
A short-term business loan is a type of financing that you can use to get cash quickly to fund any number of expenses. Lenders typically charge higher interest rates and have shorter repayment periods for these types of loans.
Can I take a short-term loan for my business?
Yes. There are many short-term loans available for businesses. In fact, they are some of the most popular versions of this type of financing, as many business owners find themselves in situations where they need cash fast.
What are 4 sources of short-term financing?
You can get short-term financing in the form of invoice factoring, a line of credit, a business credit card, or a term loan. What type of loan is best for you depends on your particular situation.
Which loan is best for the short-term?
Perhaps the best short-term loan is a term loan. That’s because you’ll have a set amount you’ll have to repay regularly, giving you cost certainty. In addition, many of these loans often have lower interest rates and fixed rates that don’t change for the life of the loan.
How much is a small business loan?
Small business loans can be costly, depending on the lender you choose and how much money you need. So make sure to check out all the details of the loans offered to you before taking them.
How do short-term loans work?
Short-term loans work like other financial products. First, you will apply for the loan, and if approved, you’ll have access to the cash. Then, you’ll then get a repayment schedule and terms, which will outline how you have to repay the money, when you have to repay it, and how much the lender will charge for taking the loan.
Where can I get short-term loans for small businesses?
There are many places where you can get a short-term loan. You can get them from traditional financial institutions, of course, but some of the best places are through online lenders. These companies can offer innovative financing products, ease of application, quick access to funds, and better terms.
Which are some short-term financing examples?
There are many types of short-term financing, but some common examples include business loans, lines of credit, and merchant cash advances. Each option has its own positives and negatives, so it’s important to do your research before deciding which one is right for your business.
Business loans are a popular form of short-term financing for small businesses. They typically have lower interest rates than other types of financing, such as lines of credit or merchant cash advances.
What are the most common short-term business loan rates?
Business short-term loan rates can range from 6% to 36%, depending on the lender. Many factors go into determining a borrower’s rate, including the loan’s size and term, the borrower’s credit rating, and whether or not the loan is secured.
How do short-term business loans bad credit work?
There are a few things to consider when taking out a short-term loan with bad credit.
Low credit scores often result in higher interest rates, so you’ll want to be sure that you can afford the payments before taking out the loan.
It’s also important to shop around and compare rates from different lenders; just because you have bad credit doesn’t mean that you have to pay sky-high interest rates.
Finally, be sure to read the terms and conditions of the loan carefully before signing anything; you don’t want to get stuck in a cycle of debt that you can’t escape.