The Essential Short-Term Business Loan Checklist
Are you considering a short-term business loan? If so, make sure you check every item on this list before moving forward.
Short-term business loans offer a helping hand to businesses that have to deal with unexpected money issues.
They come with much faster approval times than long-term loans. This makes them ideal for issues such as:
Generally speaking, you’ll pay a higher interest rate on a short-term loan than you would a long-term one. However, you can also often mitigate this by taking advantage of early repayment options.
Of course, you’ll also have a shorter repayment period. In many cases, this may be 12 months or less. However, it’s possible to secure a repayment term of 36 months with the right lender.
Simply put, they can get you out of a bind with less hassle. In many cases, you can secure such loans with little documentation. Some lenders, such as Max Funding, also offer short-term loans to people with bad credit.
As with any loan, poor preparation can lead to you running into issues. Use this checklist to ensure you’re ready to take out a loan and avoid any problems.
It’s not a good idea to apply for a loan when you have no direct purpose. You may feel like you want some capital ready for the “just in case”. But you’ll end up repaying the money that you’ve borrowed without ever using it for anything useful.
A short-term business loan may not be the best choice if you have no immediate plans for the cash. Instead, it’s best to outline the exact ways that you’ll use the money. Of course, many lenders will also want to know the purpose of the loan. If you can’t provide one, they’re likely to refuse your application.
There’s an added benefit to doing this. Listing the reasons why you need the money also gives you time to determine the exact cost of each issue you identify. This means you can apply for exactly the amount you need.
As a result, you don’t borrow more than you need, which reduces the possibility of repayment issues later on.
Item #2 – Ensure You Have the Means to Repay
The higher interest rates that often come with short-term loans can cause issues. On one hand, lenders use them because they’re providing faster approval on the loans. But on the other, they place a greater burden on the borrower.
Generally speaking, you’ll pay more interest in total on a short-term loan than a long-term one. Moreover, the shorter term usually means that you have higher monthly repayments to deal with.
None of that will be an issue as long as you know you have the means to repay. For example, you may take out the loan to keep the business going because your clients haven’t paid their invoices on time. In that situation, you know you have money coming in that you can use to handle the repayments.
Create a repayment plan before applying.
Item #3 – Check Your Credit Rating
You can usually access short-term loans even if you have a poor credit rating. However, a lower rating could lead to more stringent requirements. Plus, you may have to deal with a higher interest rate.
As a result, it’s best to know where your credit rating stands before you apply. This gives you more reasonable expectations in relation to the terms of the loan.
There are plenty of services that you can use to check your credit rating. These include:
- Dun & Bradstreet
You’ll get access to your credit rating as well as a rundown of your credit history. The rating determines your trustworthiness in the eyes of a potential lender.
There may also be some steps that you can take to improve your rating. For example, you may be able to repay any small loans that you have prior to applying for a new loan.
Knowing your rating means you have a better idea of the package a lender is most likely to offer you.
Item #4 – Find a Suitable Lender
A major bank may be your first choice when it comes to choosing a lender.
However, they’re not always the best option. In fact, the major lenders tend to shy away from short-term loans. They offer more risk than long-term loans, which means major lenders often apply tighter criteria to short-term loans.
It’s often best to seek out specialist short-term lenders, such as Max Funding. Such lenders understand the nature of these types of loans and can accommodate you to a greater degree.
Research is the key here. Don’t just go with the first lender that you come across. Spend some time comparing different lenders. Aim for lenders that offer flexibility and fast approval. That’s what a Max Funding client found after working with us. An unexpected contract rescission left the client at risk of losing a business opportunity. Max Funding helped them to secure a $100,000 loan in less than 24 hours.
Also, check for reviews and feedback about the quality of service that the lender provides. Pay particular attention to the quality of their customer service. You want to avoid lenders that become uncommunicative when issues arise.
Item #5 – Compare Loan Offers and Features
It’s not just the lenders that you have to compare to one another. It’s worth digging deeper to look into the loan packages that they offer.
Checking interest rates is the obvious first step. But it’s also worth checking comparison rates, if you can find the figures. These rates tend to provide a more realistic view of the rate you end up paying.
Ask the lenders about the specific features that they offer too. Keep in mind that short-term loans come with short repayment windows. Any lenders that offer more flexibility in this area should shoot to the top of your list.
Also, consider the differences between fixed and variable interest rates. A fixed rate may work well if the current national interest rate is low. But you want to avoid fixing yourself into a high rate. A variable rate may be the best choice if you feel like the national rate will decrease during your loan period.
The aim is to find a loan that works for your business, rather than just taking the first one you find.
Item #6 – Fill Out the Application
Fast approval is one of the major selling points of a short-term loan. For that reason, you’ll usually find that they come with simple application forms. In many cases, you can apply online and get a response within 24 hours.
This doesn’t mean that you shouldn’t pay attention to the form. Check every single term before attaching your signature to it. If you feel unsure, it may be worth consulting a legal expert to ensure you understand the entire form.
Finally, read through the form several times before sending it. You’re looking for any discrepancies or inaccuracies in the information that you enter. Getting something wrong could delay your application. This can have serious effects if you’re already experiencing money issues.
Item #7 – Collect the Necessary Documents
It’s worth spending time compiling the necessary documents before you start filling out the loan application.
The documents that you need vary depending on the lender. You may get asked for the following:
- A full business plan that details how you’ll use the loan and how you intend to repay.
- Accounting data.
- Business tax returns.
- Business documents that prove the information you provide in the application.
Prepare all of this beforehand.
The good news is that some specialist lenders require less documentation than major lenders. You may even have access to a low-doc short-term loan. Even so, it’s best to prepare.
Item #8 – Check for Additional Fees
Many borrowers don’t check beyond the interest rates when searching for loans. That’s often a mistake, as many short-term loans come with additional fees attached.
These can include the following:
- Penalty fees for late repayments
- Fees for early repayment
- Set-up and application fees
You may also have to pay solicitor’s fees or charges related to the checks the lender uses.
Again, this all depends on the lender. Avoid any that aren’t completely transparent about any additional fees that you may face.
The Final Word
While applying for a short-term loan is often simpler than applying for a long-term loan, you still have to prepare. This is especially the case in a time-sensitive situation. A refusal due to poor preparation delays the process.
Research different lenders and their products to choose the one that works best for you. Spend time on the application process to ensure you provide the correct information. Finally, make sure you understand the loan’s terms and your responsibilities.
Finding the right lender is a key part of this process. Max Funding offers short-term business loans with a difference. You get:
- 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.
It all starts with an online application. Apply today to find out if you’re eligible for one of our short-term business loans.