For small business owners, it can be difficult to navigate through the world of small business funding, and figuring out what options are best for your business can be a challenge.
To help make that task easier, we’ve outlined some of the details on all the different types of funding options available today, in individual articles like this one.
They’re a great resource for small business owners to learn about the different kinds of small business funding options available, and how they compare and contrast to one another.
This particular article in our series is focused on short-term small business loans or short-term business loans, which are a unique type of small business loan product.
What are Short-Term Business Loans?
The concept of a short-term business loan is right there in the name: it’s a business loan that is designed for the short-term. This necessarily means it works in a very similar manner to general business loans or small business loans, but is designed to be repaid over a shorter duration.
Typical short-term small business loan durations may be for a few months to a year or two at the extreme end of things. This is compared to regular small business loans, which may be available for up to 5 or even 10 years in duration.
Consequently, the repayment often begins much sooner, and payments tend to happen more frequently – weekly or daily as opposed to monthly with traditional, longer-term small business loans.
This also means that the ideal uses for short-term small business loans are often somewhat different than the more broad, longer-term uses of general small business loans and other small business funding options.
We’ll discuss these ideal uses for short-term small business loans in a later section of this guide. The most important take-away from all of this is that short-term small business loans, as their name implies, are loans meant for a short period of time.
In most other respects, they are similar to their longer-term loan counterparts. They can be secured (collateral required) or unsecured (no collateral required), have different interest rates and payment schedules, and be offered in varying minimum and maximum loan amounts.
They both provide up-front lump-sum loan amounts to be used by the borrower, and require repayment of the principal loan amount plus some amount of interest over the life of the loan.
Benefits and Drawbacks of Short-Term Small Business Loans
Obviously, short-term small business loans won’t be an ideal choice for every business. It depends greatly on the needs, goals, and objectives of your business, particularly when it comes to financing.
With that said, there are both benefits and drawbacks to short-term funding for small businesses compared with longer-term funding options. On the plus side, short-term small business loans typically offer highly competitive interest rates.
Large loan amounts are also often quite available, up to or in excess of $1M in many cases (it varies by lender).
Because of the shorter term of these kinds of small business loans, you can end up paying a lot less in interest in practice, depending on when the interest compounds or is charged, and what the rate is (a “life of loan” style rate fixed to the repayment term, or an APR, reflective of the amount of interest paid in a year).
Always be sure to have clarity on all loan terms, so that you can compare a short-term small business loan to longer-term loans on a like-for-like or apples-to-apples basis. Of course, there are some limitations or drawbacks to short-term business loans as well.
Specifically, most of these come in the form of more stringent requirements to qualify for the loan.
Because shorter-term loans tend to be considered a bit higher risk for lenders, they often have higher bars to be met in order to qualify for the loan than a general small business loan or small business funding options.
Higher credit scores, higher minimum monthly revenue requirements, and longer time-in-business requirements for short-term small business loans are not uncommon compared to their longer-term counterparts.
It can also be more difficult to make repayments on time with short-term small business loans, depending on what your sales, cash flow, and accounts receivable situation looks like, owing to the more frequent loan payments that typically need to be made on short-term loans.
The Uses of Short-Term Funding for Small Business Operations
Given their short-term nature, there are many good uses for short-term small business loans. Of course, their suitability will vary based on each individual business, their finances, and the nature of their sales or revenue.
In general, however, short-term small business loans and short-term funding for small businesses is ideally suited to be used for:
- Purchase order financing, to accommodate the natural lag time typical between when inventory must be purchased and when accounts receivable are paid from a client for the sale of that inventory.
- Balancing cash flow and uneven revenue during low points of the cycle for cyclical or seasonal businesses.
- Paying for production or employee ramp-ups to accommodate the cyclical or seasonal nature of a business.
- Covering unbudgeted or unplanned for expenses, like emergency repairs on equipment or property, expediting of material orders, and other emergency and emergent capital needs.
- Marketing campaigns or other shorter-term objectives that will yield returns in a year or less.
- Gap funding to buy out other partners or equity stakeholders in the small business.
- Expanding your business to support growth activities.
Short Term Small Business Loans and Small Business Funding Options from BizFly Funding
BizFly Funding is a non-bank, private, alternative lender that focuses exclusively on small business funding in the US market. They offer several different types of short-term and long-term small business loans and credit products.
These offerings include short-term small business loans, unsecured small business loans, bad credit business loans, loans for women-owned businesses, lines of credit, debt consolidation loans, and business cash advances.
BizFly Funding offers competitive rates, easy qualification, outstanding customer service, large loan limits, flexible loan durations, and an online application process that gets you results fast, since your time as a small business owner is incredibly valuable. To find out more, visit https://bizflyfunding.com.
Frequently Asked Questions about Short-Term Business Loans
The exact credit score requirements for a short-term small business loan (or really any kind of small business loan or small business funding product) will vary considerably based on a number of factors.
Chief among those factors is the lender you choose. Most banks and financial institutions typically have much higher credit score requirements for their small business funding options than private, non-bank lenders.
In general terms, though, 700 is a fairly decent business credit score, and with most private lenders in particular, you should have no problem qualifying for several different types of small business funding options.
As with most kinds of loan and credit products, your odds of getting approved certainly increase if you have a higher credit score.
However, in most cases, especially with non-bank, private, alternative lenders, you don’t necessarily need the best credit score or extensive credit history in order to qualify.
Generally speaking, however, short-term small business loans have a more stringent qualification or eligibility requirements than longer-term small business loans and other kinds of small business funding options, as they are a higher risk for the lender.
The exact credit score requirements for any given lender should be clearly specified on their website or in their loan application documentation.
The interest rates on short-term business loans will also vary considerably based on the lender and many other factors.
The amount borrowed, credit score, revenue, time in business, and other aspects of a business’ financial health are all typically evaluated during the loan application process for a short-term small business loan.
When you choose BizFly Funding for your loan (see the next section of this article for more), the interest rates on a short-term small business loan typically start as low as 9%, but can be as high as 45%, depending on all of those factors mentioned above.
Private, non-bank, alternative lenders who focus on small business funding are often the best place to find quality business loans and funding products that don’t have high barriers to entry or charge exorbitant interest rates.
In the US, one of the best places for these small business funding choices is BizFly Funding, who specializes exclusively in small business funding needs.
As discussed previously, the minimum credit score required for any kind of small business loan will vary depending on the lender and the particular loan or credit product in question.
At BizFly Funding, short-term small business loans require a minimum credit score of 600 in order to qualify, along with a few other basic requirements, which can be found on the information page about short-term small business loans.
