Being prepared, both mentally and financially, can make the difference between those unforeseeable events being small bumps in the road or massive sinkholes.
When you run into one of these challenges, it can be helpful to draw on a short term business loan to keep your finances on track.
Having the working capital and cash flow management to respond to emergency expenses and bills, or to embrace and pursue opportunities for growth, can make all the difference.
Small business funding, in the form of short term small business loans, can provide that working capital and cash flow help you need.
What is a Short Term Business Loan?
By definition, a short term business loan is like any other kind of business loan – you get a certain amount of money up-front, and pay it back over time with interest.
The difference is that short term business loans have much shorter loan duration, typically measured in months rather than years. This means repayment starts almost immediately, and is often daily or weekly rather than monthly like traditional, longer-term small business loans.
There are also other aspects of short term small business loans that are somewhat different than the other small business funding options out there. For instance, qualifying for a short term business loan is often more difficult than for longer-term loans.
They’re not designed for start-ups, but for companies that are stable, with a decent revenue stream, business history, and a credit score on the higher end of things.
It’s also worth noting that short term small business loans are available from various lenders in both secured and unsecured (no collateral required) format.
Like other small business funding options, unsecured loans present less risk for small business owners, but have slightly higher interest rates since they are riskier for the lender.
How is a Short Term Business Loan Typically Used?
Short term funding for small businesses, such as short term small business loans, are really ideal for unplanned expenses, emerging business opportunities, and other financial needs that are outside the realm of budgeting, plans, and forecasting.
For planned expenses, a longer duration small business loan is much easier to manage and repay. Short term business loans are harder to qualify for, and have much faster repayment requirements.
With that said, they’re ideal for things like repair bills, purchase order financing, short-term staffing up for cyclical businesses, and so on. Short term business loans allow businesses to respond to the unforeseen circumstances and needs of their business.
They aren’t the only option for this, of course, but they can help businesses to ride through the peaks and valleys of income and expenses, without causing too much financial turmoil in the regular business revenue stream.
They’re basically a supplement to regular income, to allow for non-routine bills and expenses to be paid, and opportunities to be seized, that will generate additional income or revenue in short order.
If it’s going to take longer than the period of the loan repayment to see a financial benefit, then a longer-term small business funding option might be better suited to the situation.
Is a Short Term Business Loan Right for My Business?
Of course, the choice of whether or not a short term business loan is right for your business is ultimately a decision you’ll have to make for yourself. The first thing to figure out is why you need the funds, and what you intend to use them for.
If it seems to fit well with the ideal uses of short-term loans, and will generate a quick return on this investment, then it might be a good choice. You’ll also need to ensure you meet the qualifications for the loan from your chosen lender.
This can be a sticking point for many small businesses, since the requirements for a short term small business loan are often higher than other kinds of small business funding options, even when you choose a non-bank, alternative lender.
For example, at BizFly Funding, one of the premiere small business funding companies in the US, the minimum requirements to qualify for a short term business loan are:
- You must have been in business for at least 1 year.
- You must have at least $10,000 in monthly revenue.
- You must have a credit score of at least 600.
By contrast, BizFly Funding offers regular duration, unsecured small business loans with only a 6-month time-in-business requirement, and a 500 minimum credit score.
What Other Small Business Funding Options are Available?
Whether you qualify for a short term business loan or not, there are other small business funding options available, too.
They should all be researched and considered before you make any kind of final decision on which small business funding option is ideal for your particular situation.
Many of them can be used for longer-term, planned expenses, or as a safety net or buffer for unplanned expenses over the short term. Certain options are better for providing working capital or serving as a cash-flow buffer than others.
And, some of these options are more well-suited to being used in a similar manner as a short term business loan than others. Generally speaking, a line of credit is a good alternative to a short term business loan for similar use cases.
But many businesses find value in regular, long-term small business loans, merchant cash advances, and other credit and loan options. Each has its pros and cons, and different qualification requirements as well.
Some brief details on the other small business funding options include:
- Regular or longer-term unsecured small business loans
- Debt consolidation loans to reduce debt and interest payments
- A line of credit that you can draw upon over and over again, similar to a credit card account
- A merchant cash advance, which provides cash up front in exchange for repayment via future credit and debit card sales, ideal for sales-based businesses
- Bad credit business loans, allowing even businesses with limited credit history or bad credit to access the funds they need to run their business
