What Is a Short-Term Business Loan?
For the most part, short-term business loans function similarly to traditional business loans. The difference is that you typically have less than a year to pay off what you owe instead of several years, although some short-term options may give you up to three years to repay the debt.
The most common types of short-term business loans are term loans, lines of credit, and invoice factoring. Term loans are for a specified amount over a specified period of time such as a year. A line of credit allows borrowers to draw against a total amount when needed and can be reused after it is paid off. Invoice factoring pays a percentage of the value of revenues that are expected to come in.
Who Should Get a Short-Term Business Loan?
Short-term business loans are best suited for short-term financing needs. For example, you may consider one if you’re experiencing some cash flow irregularities, have a promising business opportunity you can’t afford right now, or need to cover some unexpected emergency expenses.
It’s important to check the eligibility requirements before you apply, though. Many short-term business lenders require you to have been in business for a year or longer, and you may need $50,000 or more in annual revenue.
Short-term business loans may not be a good idea if you’re borrowing a lot of money that you can’t repay over a short period of time—this includes business owners who want to invest in expansion or a specific project that likely won’t bear fruit immediately.
How Much Does a Short-Term Business Loan Cost?
Short-term business loans tend to cost more than traditional business loans. Some loans are unsecured, which poses more of a risk to the lender, who charges a higher interest rate to compensate.
Unfortunately, it can be challenging to nail down exact figures because most short-term business lenders aren’t very transparent about pricing upfront. You’ll typically need to apply and get an offer to understand exactly how much it’s going to cost you. We found short-term loans with rates as low as 8%.
How We Chose the Best Short-Term Business Loans
We considered a lot of different variables to make up our list of the best short-term business loans, such as quick funding, low credit score requirements, competitive interest rates, and financing options.
When it came to financing options, we wanted to review a variety including term loans, lines of credit, and invoice factoring since not every business will want or qualify for the same type of financing.
Finally, we wanted to give borrowers an idea of what repayment looks like, which ranges from daily to weekly to monthly payments. And depending on your needs, we included lenders with a range of repayment terms, from just a few months to a few years.