Owning a business can be an exhilarating and emotionally rewarding experience. But for most of us, starting and running a successful business also requires money — often in the form of financing from short-term business loans.
However, understanding short-term loans and how to go about securing one can be complicated. That’s why it’s important to be informed before you start your search for the best short-term loan option that suits your needs. In this guide, we’ll look at all the elements involved in taking out a short-term business loan so you are confident when you make your decision.
What is a Short-Term Business Loan?
A short-term business loan is a form of financing that is designed to meet short-term funding needs. Typically, short-term loans cover a period of one year or less and have higher interest rates than long-term loans.
What Are The Benefits Of A Short-Term Business Loan?
Short-term business loans are attractive to entrepreneurs because they provide them with access to funds quickly and often require less paperwork compared to other loan types. Additionally, short-term business loans can be used for:
- Covering short-term cash flow gaps
- Paying suppliers on time
- Making investments in new equipment or technology
- Financing seasonal inventory purchases
- Investing in marketing initiatives to increase sales
What Should You Consider Before Applying For a Short-Term Business Loan?
Before you apply for a short-term business loan, it’s important to make sure that it’s the right move for your company. Here are some key aspects to consider:
- Your current and projected cash flow: Take an honest look at your current financial situation and assess if you can realistically afford the short-term loan payments. Is there enough money coming in each month to cover the repayments?
- The purpose of the loan: Think about why you need the short-term loan and how exactly it will help your business. Make sure that taking out a short-term loan is necessary and not just something you want.
- The short-term loan’s terms and conditions: Know the short-term loan’s interest rates, repayment structure, and other details. Make sure you understand all of these before signing a short-term loan agreement.
- Your credit score: Having bad credit can make it difficult to secure short-term loans from traditional lenders like banks. However, some alternative lenders may offer short-term business loans even with a poor credit rating so be sure to factor this in when applying for short-term business financing.
Where Can You Find a Short-Term Business Loan?
The best place to look for short-term business financing depends on your current financial situation, the amount of money you need to borrow, and how quickly you need the funds.
Our number one recommendation is Business Finance House.
Here are some other short-term loan options:
- Traditional Banks & Credit Unions: Most banks and credit unions offer short-term business loans, but these may require more paperwork than other short-term loan options.
- Online Lenders: Many online lenders also offer short-term business loans with competitive interest rates and repayment terms. However, it’s important to research each lender carefully before signing any type of short-term loan agreement.
- Business Credit Cards: Some business credit cards will allow you to access short-term financing at relatively low interest rates; however, make sure that you can realistically pay off the balance in full before any promotional period expires.
How Do You Apply For a Short-Term Business Loan?
Applying for short-term business financing is relatively straightforward. Typically, you’ll need to provide the lender with your personal and business financial information, including:
- Tax returns
- Bank statements
- Financial projections
- Business plan
- Credit history
Once you have all of this information together, contact the short-term loan provider to find out what other documentation they may require. It can take anywhere from a few days to a few weeks for short-term business loans to be approved, so it’s important to be patient while waiting.
Short-term business loans are an excellent way to access funds quickly and easily – but make sure that you can afford to make the repayments before signing any short-term loan agreement. Research short-term loan options carefully and find the one that’s best for your business needs. Good luck!