Table of Contents
- How to Use the Short Term Loan Calculator
- Understanding Your Results
- Is a Short Term Loan the Best Financing Option for My Business?
- Perks of Short Term Funding
- Disadvantages of Short Term Loans
- Using a Short Term Business Loan Calculator to Evaluate & Compare Loan Offers
A short term loan can provide your business with the capital it needs to continue operations and grow. Before you choose a lender and come to terms, it’s critical that you understand how those terms impact repayment and the total cost of borrowing.
With Fast Capital 360’s easy-to-use short term loan interest calculator, you can determine which financing option will best serve your small business.
What Is a Short Term Loan?
As its name suggests, a short term loan functions as a condensed version of a traditional term loan. Your business will receive a lump sum of cash that it will pay off, plus interest, according to a predetermined payment schedule over a set term. And herein lies the difference: you’ll pay off short term loans much quicker than a traditional term loan.
How to Use Our Short Term Loan Payment Calculator
When comparing short term business financing options, interest rates are just one part of the overall loan agreement. You also need to consider the time you have to pay off the loan as well as any fees to understand the true cost of borrowing.
To calculate your monthly or weekly payments and the total cost over the life of your loan, enter:
- The Desired Loan Amount: You can finance as little as $3,000 or as much as $500,000.
- The Estimated Interest Rate: Interest rates for short term loans start at 10% but can go higher depending on your creditworthiness and the overall health of your business.
- The Loan Term: The hallmark of a short term loan is an accelerated payoff structure. Short term loans often reach maturity in 18 months or less.
- Payment Frequency: Short term loans are riskier for lenders, so backers could require more frequent payments — usually on a weekly basis.
Adjust the loan amount, term and frequency in the short term business loan calculator to see how these factors impact repayment.
Understanding Your Results
The short term business loan calculator will output the weekly or monthly payment, the total repayment amount and the cost of the loan.
Here’s what the numbers tell you:
With this information, it’s easy to evaluate different loan options — whether you’re comparing lenders or choosing between a 12- or 18-month term.
Using our short term business loan calculator, you’ll see the true cost of financing. Frequently, borrowers are concerned with the weekly or monthly payment and whether or not they have enough cash on hand to cover the expense.
While this is important, it’s only one part of the big picture. With Fast Capital 360’s short term business loan payment calculator, you can spot the lending program best suited to your individual needs.
Is a Short Term Loan the Best Financing Option for My Business?
Now that you’ve learned how to calculate short term loan interest and have determined what your loan will cost, it’s time to determine if it’s the best financing option for your business.
As the name indicates, a short term loan is paid off much more quickly than a traditional term loan. The shortened payoff structure has its repercussions — some good, some bad.
Let’s start with the benefits.
Perks of Short Term Funding
Speed of Funding
Alternative short term lenders don’t adhere to the same regulations as banks, so the underwriting process is far less involved. With less paperwork and a streamlined application process, short term loans are quickly funded. In many cases, borrowers receive funding as soon as the same day.
Easy to Qualify
Traditional term loans funded by banks often have stricter requirements than alternative online lenders. For example, many banks will lend only to businesses that have been in operation for 2 years or longer, that have a good credit score and can offer equipment or inventory as collateral.
Alternative lenders offer capital to a wider selection of business owners. While every short term lender has different minimum requirements, if you can meet the following qualifications, you could qualify for some amount of funding:
Fast Capital 360 Short Term Loan Qualification Requirements
- 1+ year in business
- $75,000+ annual revenue
- 540+ credit score
Low Cost of Capital
While short term loan interest rates are higher than traditional term loans, they accumulate interest for a shorter period. As such, the cost of capital can generally be lower.
Disadvantages of Short Term Loans
While short term loans are ideal when it comes to the speed of funding, accessibility and total borrowing costs, this funding type does have its disadvantages.
Potentially Higher Interest Rates
Short term loans typically come with higher interest rates than long term loans. For the most qualified borrowers, interest rates start at 10%, but they can go much higher depending on your business’s creditworthiness and risk profile.
Why do short term loans have higher interest rates and fees? First, it’s easier for businesses to qualify for short term loans. With less stringent requirements for borrowers, there’s a higher risk of default. The increased interest rates and fees ensure the lender’s investment is profitable.
Second, you’re paying for the speed of funding. Unlike bank loans, short term loans are often approved in just a few days — sometimes even the same day a borrower applies. This is due to an abbreviated underwriting process. While this helps lenders quickly approve applications, they’re taking less time to vet a business, which equals more risk for the lender and consequently higher interest rates and fees for the borrower.
Because short term loans are riskier for the lender, you’ll be required to make more frequent payments — usually on a weekly, versus a monthly, basis. This can put a strain on your day-to-day cash flow, so it’s important to crunch the numbers to determine what your budget can bear. This is where our short term business calculator can help you.
When you plug the numbers into our loan payoff calculator, you might be shocked by how high the payments are. This, combined with the frequency of payments, could prove problematic for businesses with lower operating cash flow.
Using a Short Term Business Loan Calculator to Evaluate & Compare Loan Offers
If you have more than one loan offer on the table, comparing each loan’s terms can make it easier to decide the best option for you.
First, consider how much each lender is offering. It may be tempting to pick the offer with the most favorable APR, but locking in a smaller loan than you need — even at a lower rate — won’t help cover a cash flow gap.
Next, consider the loan repayment term. A short term loan will reach maturity in 18 months or less while a long term loan repayment period can last up to 5 years. You need to know what time frame works best for your business, and for the specific investment you’re making.
Finally, consider whether your business is in a position to repay the loan. If the loan payments dramatically shrink your cash flow, you’ll have to consider how comfortable you’ll be working with a smaller margin for the duration of the payoff term.
As you set out to secure funding for your small business, a loan calculator is an excellent place to start. By experimenting with different loan amounts, rates and terms, you’ll come away with a clearer understanding of what you can and cannot afford, as well as what repayment terms are manageable given your cash flow.