Short-Term Loans: A Guide

There are times when a business needs cash fast. 

It could be that you face a sudden cash-flow emergency, or an opportunity presents itself that you can’t pass up. The common challenge in both instances is time — it’s not on your side, and you can’t wait weeks or months to acquire the capital you need right now. 

Short-term business financing may be the solution.

A short-term business loan provides you with quick working capital typically repaid in daily or weekly installments over 3-18 months.

This type of business capital loan provides borrowers with one upfront sum of cash that can be used to fund any company need.

For instance, short-term small business loans can be used to finance renovations, prepare for the busy season,  buy inventory or cover operating costs.

By definition, a short-term loan is a term loan with an abbreviated payoff period. But the term is commonly applied to other forms of financing with shorter repayment agreements. A revolving line of credit, merchant cash advance and invoice factoring are types of funding programs commonly grouped under the “short-term financing” label. Here’s how these forms of short-term financing differ from a traditional short-term loan. 

• Term Loan: A lump sum loan with a specified repayment period. 
• Business Line of Credit: A pool of funds business owners can draw from up to the credit limit. Funds replenish as balances are repaid. 
• Merchant Cash Advance: A cash advance on future sales. 
• Invoice Financing: A cash advance on outstanding invoices.

Easy to Qualify For

Unsecured short-term loans are easier for small business owners to qualify for.

Banks typically require businesses to operate for 2 years or more, annual revenue of at least $500,000 and a personal credit score above 675.

With more accessible qualifications, your business could obtain the funds you need to grow. Annual revenue of $75,000, a credit score of 540 and a business history of at least 1 year is generally enough to qualify you.

Fast to Fund

With a short-term business loan, you can be approved within hours and see the funds in your account as soon as the same day.

Conversely, acquiring a business loan from a conventional lender can take weeks to several months.

Faster Payoff Structure

Loan amounts are generally smaller, and the repayment terms are drastically shorter. It’s not uncommon for a short-term loan to feature a payoff period as abbreviated as 3 months, freeing your business from debt.

Higher Rates 

When compared to long-term loans, interest rates for short-term financing are comparatively higher.

Frequent Payments

Many short-term loan programs require weekly, sometimes daily, payments. If your business doesn’t bring in consistent revenue, cash flow shortages could occur.

Smaller Loan Amounts

Due to the abbreviated payoff period, applicants are generally offered less money from short-term loan lenders.

Short-term loans are best used to fill short-term capital needs. That is, they’re not well-suited for high-cost, long-term projects that could take years before you see a return on your investment. You might consider taking out a short-term loan during times of fluctuating cash flow, growth periods or to act on immediate business opportunities.

For example, using a short-term loan to purchase inventory and hire staff for the upcoming busy season is a responsible use for this type of financing. In short, if your business will benefit from an immediate infusion of capital, and you’re confident you can repay the debt in full and on time, a short-term loan might make sense for your business.

How much a short-term loan costs depends on a variety of business aspects, including your credit score, but you’ll find interest rates start around 10% and go up based on your risk profile. Generally, short-term loans have higher interest rates as the financing carries a greater risk for the lender.  

Use our interactive short-term business loan calculator to estimate your total cost of borrowing. 

Qualifying for a short-term business loan is faster and easier than qualifying for a conventional term loan.  

Short-term business loan lenders consider various factors, including your annual revenue, time in business, average daily sales, profit margins and your intended use of funds.

Lenders increase approvals by spreading risk across multiple business attributes. While your credit rating is taken into account, it holds less clout. This is because significant and consistent cash flow can reduce other financial details that may otherwise prevent a business from securing a business term loan.

Alternative online lenders primarily offer short-term loans.  The application process will vary from funder to funder, but in general, be prepared to provide the following pieces of information:

• Personal owner details including name(s), address(es), social security number(s) and date(s) of birth.
• Company details, including a description of the business and its activities, time in business and revenue.
• Past bank statements 

Though most short-term loans are unsecured, and thus do not require collateral, some lenders may place a blanket lien on your business. Before signing on the dotted line, research and compare lenders to ensure that you’re getting the best deal for your business. 

• Fast Capital 360 brings together some of the best short-term business loan lenders through one straightforward application.

  Applying is fast, easy — and most importantly — won’t impact your credit.

  Learn More