Short-term small business loans are a sort of business funding program that normally have a 1-24 months repayment term and are generally used for immediate uses — rather for long-term funding. Being that this sort of funding is only required for short-term; the funding under this program is usually smaller than conventional term loans. Frequently, a business will use short-term funding to fill the financial gaps.
Short-term business loans are used for working capital, bridging the business financial obligations, purchase of small business equipment, inventory, and fixtures among different business requirements are usually structured in three types of facilities: term loans, lines of credit and factoring/cash advances. Each of these types of funding are offered to fulfill the borrowers’ requirement.
As the short term business financing options have shorter repayment terms, the costs and structures among the lenders vary substantially based on the type of business loans. Let’s take a look at the differences.
Short-Term Business Loan Uses
|Bridge obligations||Make payroll|
|Tax obligations||Purchase inventory|
|Business Expansion||Emergency uses|
|Purchase supplies||Consolidate advances|
|Marketing and advertising||Pay debt|
|Increase cash flow||Purchase machinery and/or equipment|
Short term business funding is provided by almost all types of business lenders, including with almost all conventional and alternative lenders. These short term loans are offered by small and large bank lenders, credit unions, alternative lenders and community banks, factoring corporations and cash advance providers. Here we look at each lending option, together with the terms and funding amount.
|Bank||14-30 years||14-30 days|
|SBA||3-7 years||10-30 days|
|Alternative||1-5 years||5-7 days|
|Invoice Factoring||1-90 days||1-3 days|
|Line of Credit||1-3 years||7-30 days|
|Cash Advance||3-24 months||1-3 days|
Short-Term Bank Loans
Conventional lenders offer short-term financing and lines of credit. Conventional bank lending is undoubtedly the inexpensive financing option for a business, but that is typically due to the fact that banks are reluctant to take too much risk. So a good way to qualify for short-term bank financing, you and your business will need excellent credit, excellent business cash flow, and adequate collateral to cover the lender’s losses should you default on loan.
Short-Term SBA Loans
The SBA’s short-term business loan options typically fall under the SBA’s main loan program: the SBA 7(a) program, which include the SBA Express Loan and the SBA Microloan program. As there is lots of banking lending institutions that have access to the SBA-backed funding of smaller, short-term financing, there are some that specialize in the lending programs. Lenders that do have a quick application process can fund inside 10 business days.
The SBA Microloan program provides businesses short-term capital with term up to 6 years that allows the Small Business Administration to approve most of the small business loans in almost 36 hours. The SBA Microloans rates are usually between 8-13%.
Alternative Short-Term Loans
Even as bank loans and SBA financing are excellent funding options, the possibilities of meeting the lenders’ requirements to acquire those loans can be quite difficult. Even in case a business does meet the requirement of an SBA or traditional bank loan, the lending process may additionally take too long to fulfill the capital requirements of the small business. Consequently a short-term financing is a better option for small businesses. Alternative loans are loans that are not the same as bank loan; however are not extremely pricey like other types of business financing, such as factoring and cash advances.
Short-Term Invoice Factoring
Invoice factoring is a way for businesses to get short-term working capital through the sale of their existing ARs. A small business will either use their unpaid invoices as collateral or sell their invoices to acquire short-term quick funding. With the invoice factoring program, the small business sells invoices at a discount, and with the invoice financing, the small business will get forwarded a fraction of the invoice value and are forwarded the remaining when the invoice is fully paid.
Merchant Cash Advance Funding
Merchant or business cash advance is typically the quick short-term funding option. But the funding rates are quite higher than other types of business financing. These are not small business loans; but are the sale of future credit card deposits. The merchant cash advance lender will offer the advance amount with a fixed repayment amount, and then subtract daily payments from the business’ bank account every business day until the complete borrowed amount is paid off.