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Short term business loans

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Jan 4, 2023

Fact Checked By:
David Nicholson - Finance Editor

Short-term business loans – How they work, best lenders and how to get one in just 24 hours

Short-term business loans are for short-term periods and can be used to quickly fund your business’s cash flow, meet immediate financing requirements, or capitalise on a business opportunity.

These short-term business finance loans can be thought of as fast-turnaround business loans. You borrow what you can repay quickly so that you can concentrate on your business and not manage debt.

These are some short-term financing options available from online business lenders. We recommend that you compare small business loans from different loan providers to ensure you have the best business finance for you.

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What is a short-term business loan?

A short-term business loan is a business loan that allows business owners to access funds to pay short-term payroll expenses, unexpected cash flow shortfalls, or other financial needs.

Short-term business loans are generally offered with annual percentage rates (APRs) as low as 3% and 50%. This will vary depending on the type and creditworthiness of the borrower, the lender, and the financing.

These are some of the most popular types of short-term business loans:

  • Short term business loans. A short term business loan is a conventional loan in which the borrower gets a lump sum of business finance money and then repays it in equal amounts over a specified time period – the term period. Once the short-term business loan is funded, interest begins to accrue and the borrower can’t access the funds again. This is a great financing strategy if you require large amounts of cash upfront, such as for a downpayment on a property.
  • Business credit. Business credit allows a business owner to access a fixed amount of cash as needed. The interest accrues only on the amount borrowed. Once the funds have been repaid, the remaining credit line can be accessed again. This type of financing is ideal if you need cash as needed.
  • Invoice factoring. Invoice factoring is the process of selling outstanding invoices to third-party factoring companies in exchange for 70%-95% of the invoice value. The factoring company collects the invoices and then pays the business the balance of the invoices. There are no factor fees.

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How do short-term business loans work?

The short-term business loan functions in much the same way as traditional loans but has a shorter repayment period.

Short-term repayment terms can be anywhere from 3 months to 3 years. However, they are often shorter than 12 months. Short-term business loans can have shorter repayment terms, which may result in higher monthly payments.

While traditional installment loans are typically repaid monthly, short-term loans might require regular payments. Short-term loans are more likely to fall into a debt trap or refinance because the borrower is continually refinancing a loan in order to reduce and delay payments. Interest accrues throughout.

When to Consider Short-term Business Loans

A short-term loan for business finance may be necessary or helpful in certain circumstances. If you are faced with the following:

  • Cash flow interruptions. Certain businesses, such as seasonal operations, are more vulnerable to short-term cash flow problems than others. A short-term loan can be a good option if your business is experiencing seasonal slowdowns or other business cash flow problems. You should ensure that you have enough funds to repay the business finance loan when it is due.
  • Opportunities for short-term business growth. Short-term business finance is a good option if your company has a great opportunity and needs funding quickly. Short-term business finance may offer faster approval and funding times than traditional loans. Sometimes, it can take as little as 24 hours to have short term business finance. Qualifications are also often easier. This type of financing should not be used if there is a potential for revenue growth or other business improvements.
  • Emergencies. Sometimes expenses are inevitable and cannot be delayed until cash is available. Short-term business finance loans are available to help you cover emergency expenses such as building, equipment, or fleet repairs.

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When to Avoid Short-term Business Loans

If your company is facing emergency expenses or is in dire need of funds, short-term business loans may be a viable option. This type of financing is not suitable for businesses that are unable to repay the loan funds in a timely manner. If you are in any of these situations, avoid a short-term loan for your business.

  • Inability or unwillingness to pay. Before borrowing, do a deeper analysis of the finances and budget of your business to determine if cash is scarce. Also, consider whether loan funds will help increase revenue or improve the company’s ability to pay its bills. Next, calculate how much you can afford each month or week in monthly payments and find a loan that suits your needs. Short term business lenders will offer various short-term finance options.
  • High annual percentage rates. Short-term loans can have higher APRs than traditional counterparts. Because of the lower qualification requirements and faster funding, this is possible. High APRs can significantly increase the cost of borrowing and individual payments.
  • Recurrent repayments. Short-term loans may be easier to repay than traditional loans due to their shorter repayment terms. This structure can result in higher monthly payments than the usual monthly one. It may also include biweekly, daily, or weekly payments. If your company is not able to make regular, on-time payments, don’t sign up for a short-term loan.
  • Repayments with partially amortized payments. Traditional business loans are often fully amortized. This means that the monthly payment is calculated to repay the loan in full at the end. Some short-term loans for business are partially amortized, with a balloon payment due at the end of the repayment term. This structure lowers monthly payments but is dangerous for businesses that aren’t ready to pay the balloon on time. Business loan providers will explain the loan term.
  • Refinance risk. Business owners can easily fall behind in loan repayments due to the short repayment terms and high individual payments. To reduce or delay payments, it is common for business owners to refinance a short-term loan multiple times. Although loan refinancing is a great way to pay for necessary expenses, it can lead to a debt trap in which monthly loan payments are higher than the company can afford.

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How to Get a Short-term Business Loan

The type of financing you choose and the lender will determine the process for getting a business loan. If you are looking for short-term financing, there are some steps that you should follow.

Assess your borrowing requirements. Before you search for a lender to lend short term finance, consider why your company needs it. Is the expense likely to improve efficiency or increase revenue? Is a lump sum of money more necessary or would a line credit be better? These considerations will help you determine the amount of cash your business needs and what fits within your budget.

Check your credit score. Carry out business credit checks, If you have poor credit history or bad credit you could fail for business finance.

Check your company credit score if you are an established business through Experian, Dun & Bradstreet (D&B), or Equifax. Lenders will also consider the personal credit score of the business owner when considering a business loan application. Most business loans are personally guaranteed. To be eligible for a short-term loan, you must have a minimum FICO score of 600.

Compare business loan lenders once you have a clear idea of the type of short-term financing that you are looking for and how much money you can borrow. Ask an agent about loan offers if you already have a business bank account or banking relationship. To gauge your chances of approval, you should evaluate the borrower qualifications of each lender. To identify red flags and get recommendations from other industry members, you can also read reviews online.

Submit a formal request. To start the formal application process, visit your lender’s website. Although many lenders allow online applications, you might need to call an agent to make a request. Traditional lenders may still require that prospective borrowers complete their applications in person.

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FAQ: Short-Term Business Loans

What is a short-term loan for a business?

A short-term loan for a business is any loan granted to a business for a limited time, usually less than one year. There are many types of short-term business loan options. It is important to research and compare all terms to ensure you find the best one.

A short-term loan for a business might be an option.

Many business owners need cash to deal with cash flow issues and seasonal fluctuations or to take advantage of opportunities. A short-term loan may be able to help you with unexpected expenses, such as a tax bill.

Although short-term business loans are able to solve many business-related problems, the decision to make the right choice will depend on your financial situation and your ability to repay it within the required timeframe.

What is the cost of a short-term loan?

Many factors affect the cost of borrowing a short-term business loan. The factors that affect the cost of a short-term business loan include the amount borrowed, the type of loan you choose, the terms you have to repay the loan, and the interest rate.

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What are the factors to consider when selecting a short-term loan for my business?

It is important to consider the timeframe in which the loan will be needed. Consider how fast you can repay the loan, and how much you can afford each month. Consider the interest rate and total amount that the provider charges on the loan.

Can I get a loan for the short term if I have bad credit?

Many short-term loan companies offer financing options for business owners and those with poor credit. There may be lending criteria you need to meet so do your research before you apply.

What is the maximum amount I can borrow from a short-term lender

It will vary from one provider to the next. Getting shorter-term loans with lower amounts and higher interest rates is more common.

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What other types of short-term loans are available, aside from the standard loan structure?

There are many short-term loan options, including invoice financing. This allows business owners to borrow money against unpaid invoices. Credit lines are another option. These allow you to access cash whenever you need it, and only pay interest for the amount used.

Another type of short-term loan is a cash advance loan. You can borrow money and then repay it using your card machine. Before you take out any type of short-term loan, you should carefully consider your affordability and whether you meet the lending criteria.

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