What are Short-Term Business Loans?
Short-term loans are loan options that should be repaid in less than one and a half years. With short-term loans, some are even due within 30 days. These loans can be used to supplement working capital, bridge the gap between cash flows, and finance certain short-term projects. Short-term loans are good options for businesses who need cash urgently to deal with a business project. When you put in an application for these loans, you will not complete a lot of paperwork, the repayment schedule is also planned, and most short-term lenders accept bad credit. You will be able to gain access to amounts as $250,000 in short term loans. Another characteristic of a short-term loan is that lenders have weekly repayment schedule. With weekly repayment schedules, a business owner will have to carefully manage his or her finances to make it easier for him or her to make payments. A downside of small term loans is that the annual cost of the loan tends to be higher than that of long term loans.
Who Qualifies for Short-Term Business Loans?
Lenders have their own requirements for short-term loans. You will only be able to obtain these loans if you meet them. Although these requirements vary, meeting the following requirements will definitely get you a loan. Your business should be at least 2 years old, you should have a credit score of at least 600, and your minimum annual revenue should be $150,000.
There are lenders who offer loans for credit scores that are 500. Some also require that your business should be in operation for at least 6 months. You can only find these lenders if you research very well. You should, however, note that lenders who request for lower requirements have higher rates.
How to Apply?
Most short-term loans are offered online. You will not need to visit the lender’s office to apply. Once you identify the lender, you can submit an online application. Most of the online applications only demand personal details, credit score, tax returns, and bank statements. When you complete the form, the lender will inform you if your loan has been approved. You will receive the cash deposited into your account by the next working day. Some can take several days but it does not take as long as traditional loan applications. When you apply for short-term loans, you will need the following:
- Proof of ownership of the business
- Voided business check
- Bank statements
- Credit score
- Driver’s license
- Personal tax returns
Popular Short Term Business Lenders
There are several short-term lenders online. Here is a list of popular and reputable ones.
Kabbage offers loan amounts that range from $2,000 to $250,000 at an APR that ranges from 24% to 99%. There is no minimum credit score requirement.
You can access between $1,000 and $100,000 at an APR that ranges from 10.1% to 79.8%. There is no minimum credit score requirement.
OnDeck offers loans that range from $5,000 to $500,000 at an APR that ranges from 16.7% to 99.4%.
Streetshares offers loans that range from $2,000 to $250,000 at an APR that ranges from 9% to 40%.
- Credibility Capital
You can also access loan amount that ranges from $10,000 to $350,000 when you apply to credibility capital. The APR ranges from 10% to 25%.
Other Alternatives for Short-Term Loans
When your business needs a loan for a short term, there are several options you can look at.
- Merchant Cash Advance
For merchant cash advance, lenders will offer you a lump sum against your future revenue. The rates differ and most of them are based on your credit score. If you have a good credit score, you can access a merchant cash advance at a lower rate. Most lenders prefer that you make daily or weekly payments when you apply for a merchant cash advance.
- Business Line of Credit
The business line of credit allows you to access a pool of funds for your business. The lender will approve some funds for you to use whenever you need it. You can draw from the line of credit and pay back within the agreed period. Business lines of credits are revolving. This means that when you pay back the amount you withdraw, your limit will increase. With a business line of credit, the interest is only charged on the amount you draw.
- Invoice Factoring
You can opt for invoice factoring when you have customers who do not pay their invoice on time. With invoice factoring, the factoring company will purchase your outstanding invoice at a percentage. Usually, the rate varies. However, most companies will give you a lump sum that is between 70% to 95% of the total invoice amount. They will pay the rest of the money when your customers pay their invoices. Factoring companies charge fees and the fees will be deducted from the paid invoices.
There is another option called invoice financing. The financing company will not buy your invoices. They will only give you a lump sum to cover a percentage of your invoices. When your customers pay their invoices, you will also pay the amount the factoring company gives to you.
Short-term loans should be taken with caution. This is because they can be very expensive if care is not taken. Short-term loans come with fees and interest rates. It is important to know the total amount you are paying as fees or interest rates before applying. You should also not use short-term loans for long term options. This is because the annual cost of short-term loans is already high. You should also not be over reliant on short-term loans. When you do that you risk the possibility of being caught in a debt trap. Since the rates are high and the repayment period is short, you may be tempted to roll over the loan into another loan. This may continue for a long time and you may be caught in a debt trap.