Generally, most people associate small business loans with standard 5 to 10-year term loans provided by banks or the financial institution and those insured by the Small Business Administration (SBA).
“In situations where the borrower plan to purchase expensive heavy equipment, a longer-term line of credit can be a good preference. The longer-term means you will pay less money each month. However, the lengthier durations of these small business loans may not be the best choice for some financing needs. In these instances, short-term business loans may be more appropriate,” advised business analyst and short-term business loan provider Shane Perry of Max Funding.
With that said, here’s what you need to know about short-term business loans to help you get started.
What Is A Short-Term Business Loan?
A short-term business loan is repaid considerably more quickly than a traditional business loan. While a standard bank or lender loans might take years or decades to repay, short-term business loans are typically paid back in a matter of months, though a few last longer up to three years. The length of time it takes to repay a short-term business loan varies, but most are for one year or less.
Small business owners often use short-term business loans to bridge transitory cash flow deficits. Seasonal businesses are especially vulnerable to cash flow fluctuations since they generate a significant share of their yearly income in a short period. These businesses might profit from a short-term business loan that delivers cash upfront without such long-term debt associated with standard financing choices like SBA loans or bank loans.
What Can Short-Term Business Loans Do for You?
Short-term business loans are often used to purchase business products with seasonal sales. An example is a retail store that has to stock up on products for the Christmas season.
On top of that, short-term business loans may also be used to generate working capital to address temporary cash flow shortages, allowing you to make salaries and other obligations. Perhaps, you’re waiting for credit clients to pay off their debts. While waiting, you could use short-term business loans to handle your responsibilities, such as paying your business accounts payable.
Furthermore, you can use short-term business loans to advance your marketing campaign, tools to run your business efficiently, as a downpayment for a space you’re planning to branch out, and many other things beneficial to your business.
How To Qualify For Short-Term Financing?
Short-term business loans need detailed paperwork from the borrower to be eligible for funding, regardless of whether the lender is a financial institution, the Small Business Administration, a community bank, or any other variety of lenders.
At the very least, the banks will ask for a document of your payment history for any prior loans you’ve had, including payment records to your suppliers (accounts payable) and your business’s financial history for the past 3 to 5 years. If the lender needs it, you must be prepared to send them your financial statements for the same period. You should professionally present every piece of paperwork.
Your lender will run your credit rating and credit history via at least three possible leading credit rating agencies. Your credit rating may be necessary to meet a certain standard. How well you do will help them figure out if the loan will be secured by something or if they’re going to let you borrow money without having to put up anything.
Interest Rates – Short-Term vs. Long-Term
In a typical economy, short-term loan interest rates are much lower than long-term. On the other hand, short-term loan rates may be higher than long-term loan interest rates in a recession. Short-term loan interest rates are typically calculated using the prime rate plus a surcharge. The premium is determined by the banks or other lenders’ assessment of your business’s risk. They do this by examining the documents you supply to be considered for short-term business loans.
Apply For A Short-Term Business Loan Today
A short-term business loan is significantly more straightforward to obtain than a traditional business loan. Depending on the lender, the loan application and application procedure will differ. You will most likely complete the entire application procedure online if you pick an online lender. So take advantage of short-term business loans to grow and advance your business. Look for reliable short-term business lenders and apply today.
If you are interested in even more business-related articles and information from us here at Bit Rebels, then we have a lot to choose from.