Best Short-Term Business Loans
If your business is opening a new location, acquiring a competitor, or experiencing any form of explosive growth, you might seek a long-term business loan to cover unforeseen expenses during the time of transition. But if your business is mostly steady — or even in a seasonal slump — a short-term business loan can help you bridge financial gaps when times are tight.
If you’re new to the world of short-term business loans, this overview offers some insight into the nature of these financial arrangements and how best to approach the application process.
Is a Short-Term Loan Right for My Business?
Short-term small business loans can be used for any number of reasons, but generally, these reasons fall into one of four categories. If you find yourself in any of these situations, a short-term business loan could likely be right for you.
- Operational Costs — You need to cover seasonal expenses, such as additional employees during the holidays.
- Cash Flow — If a big customer is late paying an invoice, it could offset all of your company’s finances.
- Emergencies — Natural disasters and other crises can leave you with a stack of bills you’re not prepared to pay.
- Business Opportunity — Reduced-priced purchases and unexpected ways to expand can be too good to pass up.
Fast small-business loans aren’t exclusively reserved for applicants with spotless credit reports. In fact, instant business loans are available to individuals with credit scores as low as 600. If your score is hovering around that level, two lenders you might want to look into are Kabbage and Fundbox. Learn more about them below.
» MORE: Poor credit business loans
Types of Short-Term Business Loans
In general, short-term business loans typically fall into one of four categories:
- Standard Short-Term Loans — 2-month to 5-year loans typically with fixed terms
- Merchant Cash Advances — An expensive way to borrow against future sales
- Lines of Credit — Flexible funding you can access and repay on your own terms
- Invoice Financing — To cover costs when customers don’t pay their bills on time
» MORE: Types of business loans
What Are Short-Term Lines of Credit?
Many business owners who are exploring their options regarding short-terms inevitably stumble across offers for short-term lines of credit as well. Lines of credit are more flexible than short-term loans when it comes to repayment, and lines of credit are open-ended, meaning you can borrow and repay funds year after year at your own discretion. And when it comes to interest, short-term business loan rates are usually at least a few percentage points higher than lines of credit for similar amounts.
Short-Term Lines Of Credit Providers
If you need to bridge gaps in your cash flow, these lenders will likely be able to help you.
Pros and Cons of Kabbage, Fundbox and Blue Vine Short-Term Lines of Credit
If you decided to apply for a line of credit from any of the aforementioned lenders, here’s a quick look at each or their pros and cons.
- Pro: Applicants only need a minimum credit score of 560
- Con: Kabbage is more expensive than other options
- Pro: Fundbox does not require a minimum credit score
- Con: Repayment terms are limited to 3 months
- Pro: Applicants only need to have been in business for 6 months
- Con: Requires a higher level of income than other lenders
For Businesses With Annual Revenue Under $100k
If your business is still in its early stages, some lenders might be hesitant to let you borrow money. The below lenders, however, have more relaxed requirements when it comes to business revenue.
- Fundbox: Minimum revenue requirement is $25,000 per year
- Kabbage: Minimum revenue requirement is $50,000 per year
- StreetShares: Minimum revenue requirement is $75,000 per year
- LendingClub: Minimum revenue requirement is $75,000 per year
Short-Term Loans for Businesses Less Than 1 Year Old
If it’s your businesses age — not it’s revenue — that seems to be a stumbling block with some lenders, you still have options. In order to qualify for a loan from either BlueVine or Fundbox, you simply need to prove your business has existed for at least 6 months.
Short-Term Business Loans for Credit Scores Under 600
If your credit score isn’t anything to brag about, that won’t necessarily preclude you from qualifying for a short-term business loan from Kabbage, Fundbox, or OnDeck.
- Kabbage considers several other factors in addition to an applicant’s credit score
- Fundbox looks at a business’s finances rather than the credit history of the business owner
- OnDeck only requires a credit score of 500 to get approved
Short-Term Business Loans
If you need fast cash, here are four of the most popular lenders to choose from along with a quick look at their pros and cons.
- Pros: High borrowing amounts, fast funding
- Cons: Expensive financing, frequent repayments
- Pros: Only requires $25,000 annual income, no prepayment penalties
- Cons: Funding maxes out at $150,000
- Pros: Loans up to $250,000, only requires a credit score of 550
- Cons: Requires an annual revenue of at least $200,000
- Pros: Lower interest rates than many other lenders, repayment terms up to 4 years
- Cons: Requires a credit score of at least 620 and annual revenue of at least $100,000
For Low-Interest Rates
If qualifying for a loan isn’t an issue for you, and you’re simply seeking the lowest interest rates around, a good place to start looking is Credibility Capital. You’ll need to have a high credit score to get approved by Credibility, but for qualified applicants, APRs can be as low as 10%.
» MORE: Low interest business loans
Pros and Cons of Short-Term Business Loans
Still on the fence about whether a short-term business loan can solve your problems? Here’s a quick look at the pros and cons.
- Pros: Fixed repayment structure, easy to apply, funding available as soon as the same day
- Cons: More expensive than long-term loans, some loans require rapid repayment
When to Avoid Short-Term Business Loans
Short-term loans can be a saving grace for businesses in dire circumstances, but that doesn’t mean choosing one is always the right thing to do. If you encounter any of the following red flags during your search for a short-term business loan, we recommend looking elsewhere for a financial institution that can meet your needs.
- Exorbitant fees or interest rates that are unreasonably high
- A requirement for more frequent repayments than other lenders ask for
- Unpredictable repayment amounts that fluctuate throughout the life of the loan
- Confusing terms that you can’t make heads or tails of
Now that you have a better understanding of how your company can qualify for a short-term business loan, take the time to compare your options before selecting the best lender for you.