Short-Term Business Loans: Ultimate Guide & 5 Best Options Of 2023

Short-term business loans can provide the funds you need to cover commercial expenses and grow. They are typically repaid within one to two years, making them a good option if you need quick access to capital. In short, they are viable financing options to fund new opportunities that could boost your company's profits. This article will help you understand short-term loans, their features, and how to use them to strengthen your business.

Top 5 Short-Term Loans For Businesses

Here are some of the top short-term business lenders in the market:

Camino Financial

At Camino Financial, we offer competitive business lending. Our installment loans have tenors of 24 months. You can apply for amounts ranging from $10,000 to $50,000. A microloan from Camino Financial can help your small business grow. You can use it for almost any purpose, which makes it a versatile and valuable financial tool for small businesses. Some examples are financing equipment or inventory, expanding your operations, or covering the cost of temporary business expenses. At Camino Financial, we understand that every business is different. That's why we offer a variety of small business loan products to meet your specific needs.

• SSN Required
• We have minimal requirements.
• If approved, you can receive funds in 2 to 10 days.

Complete an application to see if you prequalify. Apply For A Business Loan!

Kabbage

Kabbage offers lines of credit and short-term loans with simple, flexible repayment terms, and you can get the funding you need quickly and easily without the hassle of traditional loans. They offer loans up to $150,000 with 6 t 18 months terms. They do not require a personal guarantee. Some of their benefits include:

• Fast and easy application process: you can apply for a loan online in just minutes.
• Flexible repayment terms: you can repay your loan for six months to two years with no prepayment penalties.
• No collateral required: their unsecured loans don't need you to put up any collateral.
• Competitive rates: they are an affordable option for small businesses.

Credibly Capital

Credibly Capital offers short-term loans with low-interest rates, an excellent choice for immediate business expenses. With this lender, you can get up to $400,000 with 3 to 15 months to pay. Here are some of the features and benefits of their financing:

• Low-interest rates: so you can save money on interest payments.
• Flexible repayment terms: Depending on your needs, you can choose to repay your loan over 3 months to 2 years.
• No prepayment penalties: If you want to pay off your loan early, you can do so without penalty fees.
• Fast and easy approval: Make an online application process to quickly get the cash you need.

Fundbox

If you need some quick cash, a Fundbox short-term line of credit could be the perfect solution. Their lines of credit provide businesses with the capital they need to cover immediate expenses. You can get up to $150,000 with 12 to 24 weeks to repay.

• They only require that you have a minimum annual revenue of $50,000 to qualify. This makes them an ideal solution for businesses that may not have the best credit score.
• They're very flexible. You can use the loan for any business purpose, covering unexpected expenses or investing in new equipment.

Blue Vine

Short-term lines of credit can provide the funding you need to cover unexpected expenses or take advantage of business opportunities. The amount is up to $250,000 with 6 to 12 months repayment terms. BlueVine offers several features that make its short-term lending product attractive, including:

• No require a personal guarantee
• Simple application process
• Fast funding – as soon as 24 hours
• Flexible repayment terms
• Competitive rates

What Is A Short-Term Business Loan?

A short-term business loan is a financing product that can provide your company with cash. What makes short-term loans different is that they have a shorter payback period: usually one year or less. That said, some short-term lenders offer up to 24 months or sometimes more. Because of the shorter period, the loan amounts are usually lower too.

#DidYouKnow On the other hand, a long-term business loan has repayment terms of 3 to 10 years or even up to 25.

How Do Short-Term Business Loans Work?

Like most loans, you'll receive a lump sum of cash upfront, which is repaid to your lender over a set period (plus interest and fees): usually within one year. This financial product is a favorite for business owners who want to raise cash quickly and at reasonable interest rates. Short-term business loans typically cost between 7% and 60%. You could make the repayment in monthly payments over a period that ranges from 24 months to 60 months.

Pros And Cons Of Small Business Short-Term Loans

Advantages:

• Short-term business loans can provide much-needed capital to help a business grow or expand.
• Lenders usually offer a quick turnaround.
• It is possible to complete a significant portion of the loan application process online. This is fast and convenient; you don't need to visit the lender's office.
• A short-term loan can be a lifeline for businesses struggling to get by. It can provide the funds necessary to buy inventory, pay rent, or make other essential purchases.

Disadvantages:

• They typically have high-interest rates, making them difficult to repay.
• There is always the risk that a business will be unable to repay the loan. This could lead to default, damaging the business's credit.
• The lender might even demand that the business owner personally guarantee the loan, putting their assets at risk.
• You should take basic precautions to protect yourself from online fraud when applying online.

Types Of Short-Term Business Loans

There are some types of short-term business loans for small businesses: line of credit, working capital loan, inventory financing, merchant cash advance, and microloan. Lenders design each type of loan to meet a specific need that businesses may have.

Microloans

These small business loans are typically much smaller than others, and you can use them to finance specific commercial expenses. These are great options for businesses that need a little extra cash. When choosing the right type of short-term loan for your small business, it is important to consider your unique needs and financial situation. There is no one-size-fits-all solution for business financing, so working with a lender that can tailor a loan specifically for your business is vital. Apply For A Microloan!

Term Loan

This type of financing gives you a lump sum of cash upfront that you can use for almost any business expense. You'll have repayments that will occur regularly. Some are monthly, while others are bi-weekly, weekly, or even daily. You'll accrue interest as soon as the loan begins.

Business Line Of Credit

With a line of credit, you have a credit limit you can borrow against as needed. This option can be great if you need flexibility in using the funds. However, lines of credit typically have higher interest rates than other types of loans, so you'll want to be sure you can afford the payments before taking one out.

Working Capital Loans

A working capital loan is perhaps the most common type of short-term loan. As the name suggests, these loans provide businesses with the funds to cover their everyday operating expenses. This can include payroll, rent, utilities, and other similar expenses. This loan typically has fairly low-interest rates, and you can repay over a relatively short period. This makes them an ideal option for businesses that just need a little extra financial assistance to get through a tough patch.

Inventory Financing

You can use it to purchase inventory or raw materials that a business needs to produce its products or services. It's a great option for businesses expecting a large influx of orders and needs to ensure they have the necessary supplies to fulfill them.

Merchant Cash Advance

With these business loans, you sell a portion of your future credit card sales in exchange for a lump sum of cash upfront. This option is for you if you need a quick infusion of cash but don't necessarily have the collateral to qualify for a more traditional loan.

Invoice Financing

Another popular type of short-term business loan is the invoice financing loan. You use your outstanding invoices as collateral for a loan. This can be a great option if you have customers who are slow to pay their invoices.

Short Term Business Loans vs. Credit Cards

If you can't get a short-term business loan, another alternative is to get a business credit card. But which one is better for your business? Short-term business loans are better for businesses that need a large amount of money and can repay the loan within a year. Companies that require a smaller amount of money and can repay the loan within a few months may be better off with a credit card. They are better suited for one-time expenses or significant investments. Credit cards are also a good option for businesses that need money quickly and can't get a loan. They can also provide emergency cash to help you through a challenging period. They're better if you need to make constant smaller expenses.

#DidYouKnow You can use a business loan to pay off credit cards.

Common Uses Of Short-Term Commercial Loans

Some of the most common uses include:

To Cover Unexpected Expenses

You can use these products just like emergency loans. Surprise expenses can happen at any time and can be challenging to handle if you don't have the cash on hand. A short-term loan can help you cover these costs without putting too much strain on your business's finances.

To Finance Inventory

If you're running low on inventory, short-term financing can help you restock quickly so that you don't miss out on sales.

To Take Advantage Of Opportunities

Sometimes, opportunities come up that you need to act on quickly to capitalize on them. A short-term loan can give you the funds you need to seize these opportunities.

To Smooth Out Cash Flow

If your business is going through a slow period or has cash flow gaps, this financing can help you keep up with expenses until things pick back up again.

To Pay Taxes

Many businesses find themselves in a position where they must take out a loan to pay their taxes. This is usually because they've had a good year, and their tax bill is higher than usual. A short-term loan can help you meet this financial obligation without putting too much strain on your business.

#DidYouKnow You can also use short-term loans for debt consolidation.

How Much Can A Short-Term Business Loan Cost?

One of the potential downsides to this type of financing is that it can be expensive, especially if you're applying for short-term business loans with bad credit. While you'll have a higher likelihood of getting approved for these loans and getting your money fast, it might not come cheap. Some lenders will charge very high-interest rates on these loans. While some of these products may have interest rates in the single digits, many often are in the double digits, with some even hitting the triple digits. This is a high price to pay for a loan. Another thing to pay attention to is whether the lender charges any additional fees.

• Some are sneaky and charge a monthly processing fee for every repayment you make.
• Others charge a fee for paying your loan early.
• And some will charge an origination fee that could add 10% or so on top of the total loan cost.

Factors Behind The Cost Of A Short-Term Business Loan

If you're considering taking out short-term financing, you need to understand what influences the cost.

Interest Rate

Interests on short-term loans are typically higher than those on long-term loans, as lenders consider them higher risk. The interest rate will depend on many factors, including if you have a good or bad credit score, the amount you're borrowing, and the term of the loan.

Fees

These fees vary significantly from lender to lender, for example, traditional or alternative lenders. So it's essential to compare different options before you choose a loan. Lenders charge standard fees, including origination, application, and closing costs.

Repayment Terms

Loans with shorter terms tend to have lower interest rates than those with longer terms but typically have higher fees.

Your Credit Score

The higher your credit score, the lower the interest rate you'll likely qualify for. This could mean significant savings over the life of your short-term loan. If your credit score is on the low end, you may still be able to get a loan, but you'll probably pay a higher interest rate. Some lenders may also require a cosigner if your credit score is below a certain threshold. A cosigner is somebody who agrees to repay the loan if you can't. Having one with good credit can help you qualify for a better interest rate.

Type of Lender

Where you get a short-term loan affects the interest rate you receive. 

• Traditional banks and credit union loans have lower percentage rates ranging from 3% to 7%, compared to online lender rates of 11% to 44%. 
• You can expect to pay even higher rates for invoice factoring or a line of credit.

Number of Years in Business

When a lender looks at your application, most want to know how long you've operated your business. They are more comfortable offering a loan to borrowers that have been in business for one to two years.  A financial history of a business helps lenders to determine whether a borrower can take on more debt. For this reason, the number of years in business directly affects the interest rate a lender charges. 

Annual Revenue

A lender looks at how much a business earns each year and corresponding business expenses to determine if there's sufficient income to repay a loan.  They look at your financial statements to see how much income flows into your business and the number of expenditures that flow out.  By reviewing this information, lenders can determine how much revenue your business needs to generate to qualify for a specific loan amount.   

Average Short-Term Business Loan Interest Rates

The interest rates these lenders charge are normally based on minimum years in business, credit score, and annual revenue. But these are the average rates by type of lender:

• Small Business Administration: 5.50% to 8%
• Online Lenders: 4% to 35.99% or higher
• Banks: 2.54% to 7.02%
• Credit Unions: Average of 5%
• Line of Credit: 10% to 99%
• Merchant cash advance: 40% to 350%

Should You Get A Short-Term Loan?

A short-term business loan could really be a good fit for any business owner. The more relevant thing to consider before applying for one is whether this type of loan could best solve your situation. For example, if you find yourself constantly behind on your bills, then a short-term loan will probably not solve your problem. Instead, this is a long-term issue that should necessitate a re-evaluation of your finances. If you don't have any other options to fund your expenses, and if you can meet the requirements, then these business loans could be an excellent fit for you.

Most Common Reasons To Get A Short-Term Loan

There are many reasons why you might seek short-term business loans. Cashflow interruptions are one of the most common reasons to get such a loan. This could be because of unexpected dips in sales or the seasonality of your business. If you're facing personal or business-related emergency expenses, these loans could be a good solution. But it's not all for negative reasons, either. These loans could help you capitalize on a business opportunity that you can't pass up but just don't have the cash on hand to fund right now. The fact that you could get approved and get the funding quickly could help you not miss out on a golden opportunity.

When To Consider One

There are a few situations where you should consider short-term loans for small businesses. 1. The first is if you are short on cash. This could happen because your business is unexpectedly behind on collections or if your business experiences significant seasonality. 2. The second is if you've incurred an emergency expense. This could be a significant and urgent problem regarding your business building, vehicles, or equipment. 3. The third is if you have a business opportunity that you need to jump on fast but didn't plan and save for it. In these situations, getting the necessary cash now could significantly outweigh the costs of short-term business loans. In the long run, you could find yourself way ahead. Get Approved For A Loan Today

When To Avoid Them

Alternatively, there are some situations where you should avoid these kinds of small business loans. If you're having trouble consistently paying your bills each month or having a cash flow gap, then a business loan short-term is not likely to solve that problem. Instead, you should probably conduct a deep dive into your financial situation and re-work your budget. If the interest rate is too high, the cost of the short-term business loan may not be worth the cash you could get. The interest rates and fees on some of these loans could total thousands. Some short-term loans require you to repay the loan weekly. If this would significantly hamper your cash flow, you might want to avoid this type of loan. And ultimately, if the short-term business loans would just be a temporary fix to a problem that is likely to rear its ugly head again, avoid this type of loan. As mentioned before, short-term business loans are not problem solvers but tools you can use to your advantage in certain situations.

Requirements To Apply For A Business Short-Term Business Loan

Here are the most common conditions you need to meet.

• Your business should have existed for a minimum of one or two years.
• You will need a bank account to submit your financial statements online
• Your annual revenue should be at least $50,000 or more annually.
• A credit score of at least 640
• Collateral required
• Have a business plan

At Camino Financial, we have minimal requirements. You need:

• To have an active and registered business dor at least 12 months.
• Annual revenue of $30,000.
• You can apply if you have no previous credit history

Apply For A Camino Financial Loan!

How To Get Short-Term Business Loans

Short-term loans can be an excellent option for small businesses that need quick funding. Follow these steps to be on your way to securing the funding you need.

Decide How Much You Need

Small business owners should know that the loan amount should not exceed a sum they cannot easily repay. In other words, you should be very sure you can afford the monthly installment you are committing to.

#CaminoTip It may also be a good idea to extend the loan period. This will lead to lower monthly installments and will help minimize the chance of default.

If you find it confusing to estimate the repayment amount for various loan amounts and payment periods, you can use our Business Loan Calculator. [business_loan_calculator]

Research Your Options And Choose A Lender

Any time you are considering applying for a loan, you should research several lenders, no matter what the type. Only choose reputable lenders who have a history of doing good for their customers. You can check out their reviews online and with the Better Business Bureau. Try comparing both traditional and online lenders. Once you've narrowed your list of potential lenders, check out the full details of the loan products. Look at the repayment schedule, the fees and interest charged, and any other terms. Make sure you understand the terms and conditions of the short-term loan before you even apply. The best option for your business will depend on many factors, including the amount of money you need to borrow, the length of time you need to borrow it, and their eligibility requirements (like minimum credit score). Ultimately, you're looking for the best loan product that will cost you the least amount of money in the end. You should also make sure you can meet the minimum requirements. It's no use to apply for loans where you won't receive approval.

Apply For The Loan

It's time to apply for a business loan. Ensure all the required documentation is ready before beginning the application process. The process will vary depending on the lender. Still, you'll generally need to fill out an application and provide financial information such as:

• tax returns
• business and personal credit history
• business plan
• financial statements

The lender will also want to know if you have a positive cash flow by reviewing your bank account. Once you've applied, the lender will review your application and decide. The length of the loan approval process varies per lender. If your application receives approval, the lender will deposit your loan funds. Make sure you use the funds as intended and make your payments on time to avoid penalties. Apply now!

Is Short-Term Business Lending The Right For Your Business?

If your needs match the following criteria, small business loans of this type may be among the most suitable loan options.

• You want to repay the money you borrow over 1 to 3 years tops.
• You need a lump sum of cash quickly. A short-term business loan can provide the money you need to take advantage of a new business opportunity. It is a type of term financing that is repayable over a fixed period.
• You don't want a loan that carries confusing terms and conditions. You're the type who likes to understand the exact nature of what you agree to before you sign on the dotted line. In this way, short-term loans are easy to get.
• You want to be sure you can meet your repayment commitments. Short-term business loans have fixed repayment amounts and periods. That way, you won't get any unpleasant surprises.

At Camino Financial, you can get term business loans with low requirements and friendly terms. Apply today!