Short-Term Business Loan: Is It Right for You?

person wearing suit reading business newspaperRunning a business is not always smooth sailing. You’ll experience financial setbacks, like cash flow interruptions and unprecedented expenses, that will require immediate funding. Fortunately, there are various financing options available to help you gain access to fast cash. One of them is a short-term business loan. 

What Are Short-Term Business Loans?

As the name suggests, these are types of loans that can be paid off in a short time. Repayment terms can range from a few months to a year but may vary from lender to lender. While short-term loans are typically used to cover temporary cash flow issues, they can also be utilized for other purposes like:

  • Business expansion
  • Upgrading of equipment  
  • Boost marketing and advertising strategies 
  • Stocking up on inventory 
  • Increase working capital, and more   

How Can I Apply for One?

Unlike regular loans, short-term business loans involve a less stringent application process. You can even secure funding within a day or two as long as you meet the requirements. However, it is important to note that the approval for funding is still subject to review by your chosen lender. If you want to increase your chances of securing one, here are some criteria that you must meet:

  • Credit history 
  • At least 2-3 years’ experience in the business
  • Bank statements from the previous months
  • Annual revenues
  • Proof of ownership
  • Personal tax returns and
  • Identification card (e.g., driver’s license) 

Advantages of Getting a Short-Term Loan

Short-term loans allow business owners to get back on their feet after experiencing a minor financial setback. Apart from that, they can also gain access to a plethora of benefits. Here are some of them: 

An Easier Application Process

Unlike its traditional counterpart, a short-term loan involves a less strict application process. You can easily get approved even with a limited credit history. Additionally, it doesn’t require a lot of paperwork, which allows for a faster application process. Some financial institutions even give the option to process applications online. 

A Quick Turnaround

Short-term loans are faster to obtain than other regular financing options. As long as you provide the necessary documents, you can secure funding as fast as 24 to 72 hours from the time of approval. 

Enables Flexible Payment Terms

With this type of loan, you’ll have the option to choose a repayment term that will work best for your situation. For example, you can opt to pay in installments or in full at the end of the term. Depending on your lender, you can also customize how long you prefer to fulfill the payment. 

Common Types of Short-Term Business Loans

Short-term financing comes in different forms. The type of loan that you choose will depend on your current business needs and your ability to pay. Here are some of the most common options:

Line of Credit (LOC)

A line of credit allows business owners to borrow money within an amount predetermined by their chosen financial institution. Because of this, monthly payments may vary depending on the amount taken out by the user. 

Payday Loan

This financing option allows business owners to take out a loan based on their earnings. However, with a payday loan, repayment should be made in full within the next 14 days or during the next salary cut-off. 

Merchant Cash Advance

With this type of financing option, repayment is made by giving lenders access to the borrower’s line of credit. The way this works is that every time a customer makes a purchase, a portion of the sales will be allotted to the loan amount until it is paid in full.  

Invoice Financing

This type of loan is best if you have clients with outstanding payments. You can use their invoice as collateral to take out a loan. Additionally, you can assume repayment once your client has paid their invoice in full.   

Bottom line

Short-term financing offers a quick solution for business owners who are experiencing unexpected cash flow issues. If you’re thinking of applying for one, it is crucial to always weigh your options and do in-depth research first. Doing so will help you determine whether a short-term business loan best suits your needs.