Small business owners may encounter a time when they need some quick funding to support their venture. Maybe there’s a gap in revenue to cover, emergency repairs needed for equipment, or an opportunity to grow the business -- whatever the reason is – short term loans can infuse a small business with working capital that can be repaid more quickly than a standard small business loan.
What are short term loans?
Short term loans are typically smaller loan amounts given by banks and other lenders that are repaid within three months to two years, depending on the terms set by the lender to the borrower.
These loans are usually less than $250,000 with an average loan term of 18 months. The short term allows the cash flow need to be met and then paid back efficiently with no lingering debt for the small business owner.
Short term loans are allocated by lenders when it’s clear repayment will be done on time in a short time period. Lenders like to see how the business loan will be repaid by looking at your business plan and financial history.
How can I get a small loan fast?
If you’re in a rush to get a loan, it’s best to research which bank has quick financing and make sure all of your paperwork is ready. Short terms loans range from $2,500 to $250,000.
They rarely require a deposit or collateral because of the short time frame to repay the loan and its lower amount compared to other small business loans. In some cases you can get financing in as little as 48 hours, but keep in mind that the interest rates may be high. The rates vary depending on your credit history, length of the loan and loan amount.
Can I get a short term loan with bad credit?
Before you apply for a business loan you should also check your credit score. Lenders will check your score during your application process and your score will determine many aspects of your loan including your approval, and your loan term, amount and interest rate.
About 90% of lenders use the Fair Isaac Corporation, or FICO score. A bad credit score is typically 629 or less according to FICO, an organization that determines credit scores with industry-specific scoring systems.
If you have bad credit, you may still get a short term loan, your interest rate may just be higher than an applicant with a better credit score. Why? Applicants with lower credit scores are at a higher risk of making their payments, therefore the lenders charge more for you to borrow money.
What is short term financing used for?
There are several reasons why a business owner may need short term financing. No matter the reason, the borrower must have a clear way to repay the loan before they take it out.
For example, let’s say a business needs to hire holiday staff to accommodate longer business hours and large customer volume. A business owner may use a short term loan to cover the expense to hire and train employees in order to yield the benefits of a larger staff during a peak season where profits will be higher.
In another example, let’s say a restaurant owner has interior dining and outdoor seating at a restaurant. In the event that the deck for the outdoor dining is damaged and not usable, a short term loan could be used to cover the repairs, so the owner can fix the problem and restore that aspect of the restaurant’s service (and revenue).
How to choose the best short term loan for your business
Many business owners apply for short term loans because there are less fees and costs associated with short term loans as compared with other small business loans in the long run. Though the short term loans can have a higher interest rate, given the short life of the loan, borrowers can often pay less to borrow the sum by taking out a short term loan.
An adequate short term business loan will have a structured repayment schedule, limited paperwork and suit a wide range of business expenses. They are also good for those with bad credit who may not qualify for other types of small business loans.
How to apply for short term financing
Small business owners can apply for short term financing online. The process is quick.
- Bank statements
- Credit score
- Tax documents
- Proof of ownership
- Voided business check
Once the application is complete the lender will contact the small business owner to discuss the terms of the short term loan.