The Ultimate Guide to Short-Term Business Loans
A short-term business loan could breathe a new lease of life into your business. Find out the “what” and the “why” before you apply.
If you operate a business, it’s possible that you’ll need a loan at some point.
There are all sorts of reasons why:
- The business requires capital for expansion
- You have cash flow issues
- You may need to purchase equipment or inventory
Whatever the case may be, there are several loan types that you can consider.
Short-term business loans are among these loan types. However, it’s crucial that you conduct some research before applying for a loan. A short-term loan may solve your issues, but it all depends on your circumstances.
This guide aims to provide you with more information about these types of loans, including their pros and cons. It will also shed more light on who they may suit best.
What is a Short-Term Business Loan?
The key term with these types of loans is “short-term”.
A short-term business loan is one that you take out under an agreement that you’ll repay the loan amount quickly. However, the concept of “short-term” is a murky one. Many borrowers assume that they may only have a month or two to repay such a loan before they face penalties and high interest charges.
That’s not always the case.
Typically, short-term loans offer repayment periods of less than twelve months. However, some lenders offer more flexibility. For example, Max Funding offers borrowers repayment periods of up to 36 months.
Having said that, many short-term business loans offer repayment periods of between three and four months. This highlights the importance of researching before taking out a loan product. Major lenders usually offer short repayment periods. Specialist lenders may provide more flexibility.
This makes them a good solution for businesses that need a fast injection of capital.
Who Might Need a Short-Term Business Loan?
You may find yourself questioning the need for a short-term business loan. Some borrowers feel that a long-term solution is a safer option.
However, there are many situations that a business may find itself in where it requires quick access to cash. This is something that most long-term loans can’t provide due to their longer application periods.
The following may benefit from these types of loans:
- Start-Up Businesses. Brand new businesses often can’t offer much in the way of security for a long-term loan. They also have to deal with set-up costs that more established businesses don’t have to worry about. These initial costs can place a huge burden on the start-up. Short-term business loans can alleviate that burden and provide a start-up with the capital needed to get up and running.
- Fast-Growing Businesses. Rapid business expansion may occur if you achieve unexpected success. While this is a boon to the business, it also adds pressure to your operations. You may need to hire new people, buy new equipment, and set up more infrastructure to keep pace with the growth. A short-term business loan provides the capital needed. You can then rely on the growth of the business to help with the repayments.
- Businesses With Cash Flow Issues. Many small businesses rely on timely invoice payments from their clients. Any delays could lead to cash flow issues that prevent them from paying their own bills. Moreover, chasing delayed payments could lead to the business facing legal costs. A short-term business loan can help such businesses remain solvent while they get their cash flow situations in order. One of Max Funding’s clients used a short-term loan for this very purpose. Poised to buy a new premises, the client experienced cash flow hiccups as the purchase drew to a close. Max Funding helped them to secure a short-term loan of $885,000 so they could complete settlement.
- Businesses in Emergency Situation. Often, the source of your money issues may not stem from business-related issues. Emergency situations can lead to you needing access to money quickly to remedy them. For example, hardware and maintenance issues could prevent the business from operating. Your funds may not cover the repair costs, which would leave the business unable to generate income. A short-term business loan can remedy the immediate problem to ensure the business stays in operation.
These are four of the major situations in which a business may benefit from a short-term loan. Additionally, seasonal businesses may use these loans to stay solvent during down periods.
A business may also use these loans to allow them to take advantage of discounted inventory prices. The idea in those situations is to secure discounted inventory before selling it on to both repay the loan and make a profit.
Your business may find itself in such a situation. However, it’s crucial that you consider the pros and cons of short-term loans before applying.
The Pros and Cons
Short-term business loans aren’t always ideal for your circumstances. Keep the following in mind while making your decision.
- A short-term business loan provides fast access to capital that you can use to remedy your most pressing business issues.
- Lenders tend to process applications quickly, which means you’ll usually receive approval within 24 hours. This assumes that you meet the criteria that the lender has in place. Some specialist lenders can even provide pre-approval in a matter of minutes.
- Businesses with poor credit histories may still be able to access a short-term loan. This makes them a viable alternative for those who can’t get approval on a long-term loan from a major bank or lender.
- The fast approval process often means that short-term loans come with higher interest rates than long-term loans. This means you may have to pay more for access to the same amount of money. To mitigate this, many lenders offer discounts to those who repay their short-term loans early.
- Some short-term lenders offer inflexible repayment conditions. In some cases, you may have to make weekly, or even daily, repayments. This is not the case with all lenders though. Make sure you consider all of your options to avoid inflexible repayment schedules.
- As with all loan types, you may face penalties and fees if you’re unable to make your repayments.
The Types of Short-Term Loan
You can access short-term business loans from a variety of different sources. Which works best for you depends on your circumstances. These sources include the following:
- Pawnbrokers. Often considered a last resort, pawnbrokers can offer fast cash in exchange for an asset. This is often an item of value, such as a precious metal or a piece of equipment. You receive money in exchange for the asset, which you must pay back with interest. Failure to meet the repayment deadline leads to the pawnbroker seizing the asset to sell to somebody else. This type of loan offers very little flexibility.
- Personal Credit Cards. Many small businesses rely on their business credit cards to handle payments. However, you may benefit from using a personal credit card in the short-term. These cards tend to come with better interest rates. However, using this method place the onus on the business owner to keep their records in order. Failure to properly report business expenses made using a personal credit card could lead to issues.
- Business Loans. These are the most common and reliable form of short-term business loan. These loans require you to meet certain conditions, which can create a barrier to access. However, many specialist lenders offer flexibility that lowers these barriers.
Generally speaking, it’s best to access a business loan from a lender over the other options. Personal credit cards have tighter limits and require increased levels of diligence. Pawnbrokers require you to put assets up directly and have very short repayment windows.
The Final Word
A short-term business loan may be the solution if your business is currently dealing with cash flow issues. However, you need to find the right lender before applying.
Max Funding stands out because we offer the following on all of our short-term loans:
- A pre-approval decision within five minutes.
- Flexible repayment periods of up to 36 months.
- Quick and easy online application.
- Access to low-doc and bad credit loans.
- Easy qualification.
- The ability to borrow between $1,000 and $1 million.
- Early repayment options.
- Tax-deductible interest.
You only need to fill out an online form to see if you’re eligible for a Max Funding short-term business loan. Apply today and receive an outcome within five minutes.