Short-term business loans are loans designed to help businesses in need of immediate financing.
Businesses are always susceptible to surprise expenses that they may not be prepared for. For example, if a piece of expensive machinery breaks and you don’t have the capital to replace it, a short-term business loan may be the solution.
Funds are typically disbursed very quickly and are repaid over a short period of time — often less than a year.
Short-Term vs. Long-Term Loans
Short-term and long-term loans are similar in many regards. However, there are generally two primary differences: the repayment period and collateral.
While long-term loans can have repayment terms of up to 25 years, the maximum repayment period you can expect for a short-term loan is usually around 18 months.
Additionally, short-term loans are often unsecured, so you don’t have to put up any collateral to get the financing you need. While this can be helpful to businesses, it means that the requirements for short-term loans are often more strict.
Lastly, short-term loans may have lower loan limits than long-term loans.
Short-Term Business Loan Benefits
There are many benefits of short-term business loans, including:
● Fast disbursement
● No collateral requirement
● Credit score boost
● Cash flow management
● Ability to capitalize on new business opportunities
Since short-term loans allow you to receive funding in as little as one business day after approval, they are a great solution for businesses in need of immediate funding.
The specific requirements for a short-term business loan depend entirely on your lender, so it’s important to carefully review your lender’s terms.
That being said however, there are a few basic requirements you should aim for, including:
● A credit score of at least 500
● $100,000 in annual business revenue
● Ability to repay the loan quickly
● At least 6 months in business
Your credit score and annual revenue are two of the most important factors when applying for a short-term loan.
Since lenders are taking on more risk by not requiring collateral, it’s important to demonstrate strong financial wellbeing in order to qualify for favorable interest rates.
Where to Get a Short-Term Business Loan
Short-term business loans are available from most of the same lenders you would borrow a standard loan from, including banks, the SBA, and alternative lenders.
If you need to access a large sum of money quickly, the SBA may be a great option. SBA Express loans are available in amounts up to $350,000. Applications are reviewed within 36 hours, so you can get your money as quickly as possible.
Whichever lender you choose, it’s important to compare rates and terms to find the best option for you.
How to Apply for a Short-Term Business Loan
The application process for a short-term loan is the same as applying for a standard business loan. Just follow these steps to get started.
- Determine how much you need
First and foremost, you need to determine how much money you need.
Short-term business loans are unsecured and have short repayment periods, so they are often only available in low amounts. If you need to borrow more than $100,000, your options will be more limited.
Additionally, you’ll need to demonstrate to your lender what you need the money for and how you plan to pay it back, so it’s important to evaluate your financial capabilities before looking for a lender.
- Find a lender
Next, you need to find the lender that meets your needs.
As mentioned previously, short-term business loans are offered by banks, alternative lenders, and the SBA, so there is no shortage of options.
Be sure to find at least three or four separate lenders. Once you’ve narrowed down your search, get pre-approved by multiple lenders and compare quotes from each.
In addition to interest rates and repayment terms, be sure to review any additional fees required by the lenders.
- Complete your application
Once you’ve found your lender, you need to complete your application.
To apply, you’ll likely need the following documents:
● Business tax returns
● Personal tax returns
● Bank statements
● Personal identification
● Business licenses
● Financial projections
These documents will be required by most lenders, so it’s important to gather them in advance to streamline the application process.
After being approved, review your terms one last time. If you are happy with them, you can sign your loan agreement and wait for disbursement.
If you need immediate financing, there are a few alternatives to short-term business loans, including:
● Business lines of credit
● Merchant cash advance
● Asset-based lending
● Invoice factoring
These options have many of the same benefits and requirements as short-term business loans. If you need quick funding, these options may be worth exploring.