Short-term loans are lump sum loans which are repaid within 18 months. These loans are flexible and are commonly used for financing short-term unexpected cash flow issues, or taking advantage of new potential business opportunities.
How do short-term loans work?
There are times that your business needs extra cash quickly. In times like these, you can get a short-term loan, which can help your business get funding in your bank account before you know it.
Through short-term business loans, predictability is the name of the game. Just like traditional bank term loans, you’ll receive a set amount of funding, which you agree to pay back, along with the lender’s interest and fees, over an agreed amount of time.
But, in the case of short-term loans, the repayment period is typically shorter, and the loan amounts are smaller, interest rates are higher, and you mostly pay the lender back on a daily or weekly basis instead of a monthly schedule. One disclaimer before applying for short-term loans: they are some of the most expensive loans available to small businesses.
Although they make sense for plenty of situations, the best loan for your business is always the lowest costing loan. It’s wise to make sure that your business has a clear short-term debt repayment plan.
How can a short-term business loan help?
Access to working capital is essential because it takes money to make money. It does not matter whether you are just starting out or planning to expand your business. As a matter of fact, almost every business in the world needs extra capital from time to time. In such cases, a short-term business loan is the best option.
Qualifications for a short-term loan
Short-term lenders emphasize more on cash-flow than traditional term loans lenders. But, in some cases, a strong cash-flow can overcome other financial information that would end up disqualify a business for a traditional term loan.
The amount you can borrow and the interest rate will depend entirely on your personal credit rating, business history, and annual revenue.
Documents needed for a short-term loan
• Personal Tax Returns
• Credit Score
• Bank Statements
• Proof of Ownership
• Voided Business Check
• Driver’s License
• Fixed payment structure
• Less paperwork
• Acceptance of bad credit
• Suitable for many types of business purposes
• Higher annual costs than long-term loans
• Difficult weekly payments make it hard for businesses with sporadic revenue
Short-term loan case studies
You get a chance to fill a huge order for a customer who will be able to pay you in 60 days. But, on the other hand, your supplier needs to be paid in a week. Without access to cash, you might as well pass up this golden opportunity.
But with the help of short-term business loans, you can access the funding you need to work on that order and pay back your loan back when your customer pays you for it.
Or maybe in this second case, where acquiring a short-term loan would give you the funding to build your inventory well and cover promotional expenses beforehand since your seasonal small business may needs an influx of capital just before the holiday season.
Short-term loans are a great way to fund other short-term debts with favorable terms or meet any other short-term financing need. Fast financing gives you the flexibility on how you spend it.