As the name suggests, a short-term loan is money you can apply for and get quickly. Maybe your business is having money flow problems. A short-term business loan doesn’t even require a lot of collateral. But there are high-interest rates and big fees involved. Short-term lenders also lend out smaller amounts than bigger banks.
What is a short-term loan?
These are different than long-term loans in other ways. They usually need to be paid off in six months to a year. The loan term on these shorter varieties can go as long as 18 months. Keep in mind most of these lenders want you to pass a minimum credit score.
Can you take a short-term business loan?
Short-term business loans are excellent for cash flow gaps and buying inventory. These are also good for unexpected emergency expenses and meeting payroll.
This type of short-term financing requires good documentation.
Benefits of Short-Term Small Business Loans
Entrepreneurs can use these short-term business loans to their advantage. Remember, these are different from lines of credit options. There are different loan terms involved. Here are five advantages this type of small business loan has over other lenders.
Business Owners Get Quick Funding
Get a loan early with this type of financing. Short-term business loans like this get approved quickly. In some cases, small business owners can have the money in a day or two.
You Can Apply Quickly
The process is fast and easy. In many cases, you’ll be dealing with online lenders. Collect documents to make the process even quicker than with traditional lenders. Putting together a credit history and annual revenue numbers makes the process even faster. Don’t forget bank account numbers.
You Can Build Credit Scores
Qualifying for one of these loans can help you get a line of credit or a long-term product down the road. Maybe you’re a new business with a low credit score. Small businesses generally and startup businesses specifically can use short-term loans. Remember, brand-new businesses might not meet a minimum credit score requirement for longer loans.
These Bring In Cash
It takes just a few minutes to apply. And the fast application process can help with cash flow issues. Traditional banks offer business line of credit products and lines of credit. But unpaid invoices can cause emergency expense problems when mortgages and utilities need to be paid. There are same-day funding possibilities but you need to be careful with them. There’s no financial protection with these.
These Are Flexible
These loans have varying repayment options, interest rates, and repayment terms. A longer-term loan might have a lower interest rate, but they have longer repayment periods.
Here’s another bonus. You can make monthly payments on these loans. Even though they are short-term, you don’t need to pay it all back in a lump sum. Weekly payments can be helpful so you can shift the balance of the remaining interest toward the principal.
Types of short-term loans
You might need one of these loans for unexpected costs or an unforeseen business opportunity. There are several types including bank overdrafts, car title loans, and payday loans. Check into items like repayment terms on different loan amounts. Short-term personal loans are available too.
There can be credit score penalties for taking out a short-term loan. Some companies can make an inquiry so your credit will take a slight dent. Your credit score can also take a hit if you don’t pay the loan off in time or miss payments.
ShortTerm Loan Requirements
As you can imagine there are some requirements when you enter into an agreement.
Like the following:
- Some lenders will want you to have some collateral.
- Proof of income is important, which can include bank statements.
- Some lenders may want to see proof of employment.
- You’ll need an active bank account a valid address and personal identification. A checking account works, and you’ll need to have a photo ID.
Collect this information before you apply for these short-term loans. A low credit score can be an issue.
Best Short-Term Loan Options
As a small business, you might have a cash flow gap or another issue. Here are a few of the best options for short-term financing. Check out how many business days it takes to get the money when you’re sorting through the options. Here’s a quick list of your best choices when you’re in North Dakota. And a list if you live in South Dakota.
1. OnDeck
You can get same-day funding here. Interest rates depend on your monthly or annual revenue. Be aware, you can’t get bad credit loans.
2. SnapCap
This company has a low minimum credit score requirement. You can try and select the loan amount with their flexible funding options. They have supplied over $1 billion in total business credit funding.
3. Credibility Capital
Get a low fixed monthly payment. There is even a loan calculator so you can check out several repayment period options.
4. Fundbox
Repayment terms range here and you can get Fundbox Flex Pay. This allows you three extra days to repay. Add this addition to the original loan agreement and there are no fees.
5. Avant
This company has been offering installment loan options since 2012. They offer a variety of products including home improvement and or emergency loans to name a few.
6. LendingPoint
If your credit report needs a little work, this is the company to work with. Businesses and individuals with a poor payment history and bruised credit can apply for a loan amount anywhere between $200o to $36,500. The APR is between 7.99% all the way up to 35.99%. This is a preferred choice for bad credit borrowers.
7. PenFed Credit Union
You don’t need to pay any origination fee. Plus there are no prepayment penalty fees.
8. Upstart
This is a good choice for people with fair credit. Borrowers can get the money the next day after they are approved. Upstart uses AI to approve their borrowers.
9. Upgrade
There is a minimum credit score of 560. However, there is no early repayment penalty. Upgrade offers a low borrowing limit of $1,000.
What is the shortest term for a loan?
Short-term loans have the name for a reason. They need to be paid off somewhere between six months and up to one year. The longest time possible is 18 months.
What is the best option for short-term business loans?
The best option for one of these short-term business loans has a fixed rate. They can be risky and you want to watch out for traps like prepayment penalties.
READ MORE:
- How to Get a Small Business Loan
- Business Loan Terminology You Need to Know
- Small Business Financing Options
- A Complete Guide to the Small Business Loan Documents You’ll Need
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This article, “What are Short Term Loans?” was first published on Small Business Trends