A Business Owner’s Guide to Short-Term Small Business Loans

A Business Owner’s Guide to Short-Term Small Business Loans
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The duration or length of time for repayment of a small business loan can be an important factor in your choice of loan product.

Depending on how you intend to utilize the loan, short-term business loans, which typically have a term of several months to about a year, maybe the ideal choice over more traditional, longer-term small business loans. 

Short-term business loans can often save businesses money, and more closely align their financing needs to their expected revenue and return on their investment, among other benefits.

But what is a short-term business loan, anyway? How does it differ from other types of short-term funding for small businesses? How does it stack up against longer-term small business funding options, like traditional small business loans? 

Why are short-term small business loans beneficial, and where can small business owners obtain them? 

Let’s address all those questions, by starting, appropriately enough, at the beginning.

What is a Short-Term Business Loan?

Fundamentally, short-term business loans are business loans designed to be repaid over a short period of time. How short a period of time?

That time period varies from lender to lender, but most agree it’s the span of a few months to around a year. In some cases, 18 months is cited as the upper limit, and some individual lenders may have more extensive terms.

Short Term small Business loans

There’s no universally-agreed upon industry definition for a short-term business loan. Effectively, it’s a loan that works like any other – a lump-sum amount of loan funds is provided up-front, and then repaid with interest over a period of time. 

The key difference here is the amount of time, which is typically fairly short compared to all other kinds of small business loans (and most consumer loans, for that matter).

How Does a Short-Term Business Loan Differ from Other Small Business Funding Options?

Short-term small business loans don’t just differ in the length of the loan term, though that is the primary defining characteristic. They typically are also harder to qualify for than other types of unsecured small business loans, as they present a higher risk for the lender and borrower.

With a shorter period to repay the loan, and repayments that start almost immediately, short-term business loans require a decent credit rating, established business, and reasonable revenue in order to obtain.

How Does a Short-Term Business Loan Differ from Other Small Business Funding Options

This can make them unsuitable for start-ups and new ventures, but very valuable for established small businesses in need of small business funding.

Short-term business loans also typically have higher interest rates than other kinds of small business loans when compared on an annual (APR) basis, but this can end up being less over the actual term of the loan – especially if it’s measured on the order of months rather than a year.

A loan with a 20% APR that’s designed to only last 6 months has an effective interest rate of closer to 5.9%, whereas a 20% APR loan lasting 1 year will cost you 20% in interest. 

So you need to be sure, when evaluating short-term small business loans vs. longer-term loans that you are comparing their interest rates on a realistic, apples-to-apples basis. 

This will reveal that many short-term business loans are effectively a much lower interest rate product than their longer-term loan counterparts.Finally, repayment frequency is an area where most short-term small business loans differ from longer-term loans. 

With short-term business loans, repayment typically takes place daily or weekly, rather than monthly in the case of traditional small business loans. This can make it harder to routinely make your payments, since they are more frequent, but they are also correspondingly smaller.

 Imagine, a $10,000 loan repaid in 12 monthly payments, on principal alone, will be $833 per month/payment. That same loan over 6 months, with payments weekly (26 payments), on principal alone, will be $385 per payment. 

You just need to have confidence that your business generates enough revenue to make the more frequent, smaller repayments with a short-term business loan to ensure that it is a good fit for you.

Why Choose a Short-Term Small Business Loan?

The simple reason why many businesses choose short-term small business loans for their short-term spending needs is that you can save substantially on interest payments. 

It makes no sense to take out $100,000 in a 3-year loan, if you intend to spend the money right away, and project revenue for repayment in 1 year or less.

Why Choose a Short-Term Small Business Loan

Otherwise, you’ll be paying interest for at least 2 years when you don’t need to be – wasted money you could be putting to other good uses to operate and grow your business! 

A huge portion of your repayment will be interest on that kind of traditional small business loan, especially early on.

By contrast, a short-term small business loan, set over a hypothetical 1-year period, will require a faster pace of repayment right away, but save you considerably in interest over the life of the loan. 

It’s a matter of providing business owners the kind of small business funding options to match their spending, cash flow, and revenue needs. 

Short-term funding for small businesses can be a great choice for things like marketing campaigns, growth initiatives, purchase order financing, irregular, cyclical, or seasonal businesses cycles, making repairs on equipment, and other immediate to near-term expenses that will generate revenue in short order. 

Provided you have the revenue stream and business operations to support repayment, short-term funding for small businesses is often the ideal solution for these and other short-term use cases.

Sources of Short-Term Business Loans and Short-Term Funding for Small Businesses

Short-term business loans can be hard to obtain from banks and traditional financial institutions. 

As they are among some of the higher-risk types of small business funding, and small business funding is already seen as high-risk, the bar can be set very high to qualify for a short-term small business loan. 

This is doubly true at banks and financial institutions that are already hesitant to loan to small businesses at all, and prefer much safer, low-risk investments.

Many business owners turn to non-bank alternative lenders – private lending companies – for their unsecured short-term business loans and other small business funding products. 

These companies typically offer loan and credit products that have much more easily-met credit score, revenue, and time-in-business requirements. One such lender, a leader among US fintech firms, is BizFly Funding.

BizFly Funding offers short-term small business loans and many other small business funding products to help small and medium-sized businesses to grow, expand, and operate successfully.

Short-Term Business Loans from BizFly Funding

If you’re in need of short-term funding for your small business, or any kind of small business funding, including small business loans, lines of credit, and other options, then consider BizFly Funding. 

BizFly Funding is a premiere non-bank private lender, focused entirely on providing small business funding solutions. You can apply online and get pre-approved in as little as 30 minutes, and get your loan funds within 1 business day. 

To learn more about the advantages of BizFly Funding, or to start your application, visit https://bizflyfunding.com.

Frequently Asked Questions about Short-Term Business Loans

The interest rates available on short-term business loans will vary from lender to lender. They will also vary considerably based on the length of the loan, the amount of the loan, and other factors. 

At BizFly Funding, short-term small business loan rates range from 9% to 45%, again dependent on a number of factors.

Every lender has different processes for borrowers to apply for a short-term business loan. 

In most cases, you first need to ensure that your business meets the minimum eligibility requirements to qualify for the short-term business loan or other types of short-term funding for small businesses. 

Then, you need to fill out the application with the requested information. BizFly Funding, as a leading non-bank lender, offers a convenient online application that can have you pre-approved in as little as 30 minutes.

Short-term small business loans aren’t the only small business funding options available for small and medium sized businesses. 

Unsecured small business loans, merchant cash advances, lines of credit, debt consolidation loans, as well as other specialty loan products are all available. 

There are even special small business loans available for businesses with bad credit or limited credit history.

Short-term business loans are a great option for businesses in need of quick funding over a short period of time. 

Rather than commit to a multi-year loan, which will incur significant interest payments over its life, businesses can access short-term small business funding to be used and repaid in a period of time that roughly mirrors their expense, revenue, and cash flow projections. 

The net result is a savings in interest expense, sometimes quite significant, over traditional small business loans that have longer terms.

Short-term small business loans are a great choice for short-term projects, non-routine expenses, growth, and gap financing for operations. 

Some of the most common uses of short-term funding for small businesses include purchase order financing, marketing campaigns, growth and up-staffing, seasonal and cyclical business operations, and other limited-duration expenses, where the return on the investment or cash flow will be realized within a year or less.

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