Everything You Need to Know About Short Term Business Loans

Last Updated on November 25, 2020

When you own a small business, an urgent need for cash is a common problem. You might need to hire new employees, purchase new inventory, or pursue a new opportunity to grow. Short term business loans are a common solution that allow you to cover new expenses, while your working capital covers other operating expenses.

In a pinch, short term business loans can help you accomplish anything. You can use this cash to cover immediate expenses, including sudden challenges and working capital shortages, but especially new opportunities.

Looking to solve a challenge or take your business to the next level? This blog post includes everything you need to know about short term business loans, and whether or not they’re right for your business. 

short term business loans

What Are Short Term Business Loans?

Short term business loans are simply loans that help your business cover working capital needs, with a repayment term of a year or less. 

When you receive a short term loan, you’ll get a lump sum of cash deposited into your bank account. Throughout the repayment period, you’ll be responsible for making payments, which are based on a predetermined agreement. 

At a certain stage, all businesses encounter a need for additional cash. Between problems that your business might encounter, along with opportunities to take things to the next level, getting a short term loan can help you boost revenue in the long term.

At first glance, paying back the loan over a shorter period of time can add stress to your budget. But in reality, short term business loans may be the best tool at your disposal to capitalize on immediate needs that drive revenue.

By nature of the shorter term length, short term loans tend to have lower funding amounts than long term loans. That being said, you can normally still find the financing you need by applying through a trusted marketplace.

Because the amount is lower, you generally won’t have to worry about overborrowing or overpaying, like you might with a larger sum. Instead, you can ensure that you’re taking only the funds you need to accomplish your goal and start driving growth. The shorter payback period also means that there is less time for interest to accrue.

With cash in hand, you can get started spending on hiring, inventory, or any other expense you might face.

How Short Can Business Loan Terms Be?

When it comes to moving forward with a loan program, the term length is an important factor. After all, this is the period of time during which you’ll be held responsible for repaying the loan. 

Depending on where you apply, you can find short term business loans that range from as short as 6 months, and as long as a year. Loan programs that last longer than this fall into the long term loan category.

Some of the short term financing options you can qualify for are:

Breaking Down the Difference Between Short and Long-Term Loans

During the search for financing, most small business owners seek out loans with longer terms. But in reality, the decision between short- and long-term loans should take your needs and goals into consideration. Before moving forward with a decision, you should speak to an expert who can advise you on the best choice for your business.

Short-term loans generally have a payback period that lasts anywhere from 6 months to 1 year. Long term loans, on the other hand, can last anywhere from 1 year to 10 years.

But, the difference between these types of loans is less about the term length, and more about how you plan to use the extra cash while growing your business.

If you need cash to finance a new opportunity by hiring new employees, purchasing extra inventory, ramping up marketing, or taking on a new project, then a short term business loan may make the most sense. These expenses drive short-term revenue, meaning you’ll soon have the cash you need to repay the loan, rather than let interest accrue.

Long-term business loans, on the other hand, are better suited for expenses that may take your business to the next level, but not right away. A term loan could strategically cover growth costs like opening a new location, purchasing real estate, acquiring another business, and other necessary costs, like building maintenance.

Many business owners apply for SBA loans, which usually allow for extended term lengths.

Another important factor to consider is the speed between application and funding. Because lenders aren’t researching your business as thoroughly, you can normally qualify for short-term loans in a faster period of time. 

Long-term loans may take slightly longer to qualify for, but still much faster than a bank. When you apply through a trusted marketplace, you can usually still receive your financing in a reasonable amount of time.

Is a Short Term Business Loan Right for My Business?

So, your business needs funding. Should you apply for a short term business loan, or for longer term products?

To choose the right program for your business, you need to examine your needs, including how you plan to utilize the cash.

When you’re looking for a large sum of cash to cover long-term growth expenses that won’t lead to revenue in the short term, then long-term loans make the most sense. 

Short term business loans, on the other hand, are intended to cover expenses that will lead to a revenue boost in the near future, like:

  • Seasonal opportunities or slumps
  • Purchasing extra inventory
  • Cash flow gaps
  • Hiring additional employees
  • Running a new marketing campaign or increasing advertising spend
  • Taking on a new project, customer or client

In other words, any costs that will boost your small business revenue right away, rather than in a few years, makes sense to cover with a short-term loan. 

Additionally, short-term loans are also the right choice when you need a little extra cash because cash flow is slow, or you have a sudden challenge to resolve.

How Can I Qualify?

While all short term business loans have term lengths lasting from 6 months to 1 year, they vary wildly when it comes to interest rates, loan amounts and more. 

Because not all short term business loans are the same, the qualifications aren’t exactly universal. Lenders will evaluate your business differently based on their own requirements, and the qualifications for their specific programs.

Different lenders may have different qualifications, but most will examine the same few key indicators, like:

  • Business and personal credit score: This tells the lender about your previous financial commitments. While this is an important number, a high credit score is no longer the make-or-break factor it once was for all lenders, and still is for banks. Most fintech and online lenders will have options regardless of your credit score, even with bad credit.
  • Time in business: Before choosing to lend to your business, lenders will want to ensure that your business has been around long enough to guarantee you can repay the loan. As a baseline requirement, most lenders will require you to be in business for at least 6 months. 
  • Annual revenue: Unlike your credit score, your annual sales gives the lender a more vivid idea of how your business is performing. To qualify for options, you normally need at least $120K in annual revenue.

Putting collateral down may help you negotiate better terms for business financing, but you can also find unsecured options without collateral. 

Most lenders, however, will require a personal guarantee. This simply holds you accountable for the costs of the loan in the event your business defaults. 

Get Started Growing Your Business Today!

If you have a new opportunity ahead in your business, then what are you waiting for?

At National, we can find the best short term business loan options available on the market for you through our 75+ lender marketplace. Applying is quick, simple and easy, and you can submit your financials without any paperwork.

One of our Business Financing Advisors will guide you through the process and answer any of your questions. Through our lightning-fast process, you could receive your options in minutes and funding in as little as a few hours.

Ready to get started? Apply now to learn your options!

National Business Capital is the #1 FinTech marketplace offering small business loans and services. Harnessing the power of smart technology and even smarter people, we’ve streamlined the approval process to secure over $1 billion in financing for small business owners to date.

Our expert Business Financing Advisors work within our 75+ Lender Marketplace in real time to give you easy access to the best low-interest SBA loans, short and long-term loans and business lines of credit, as well as a full suite of revenue-driving business services.

We strengthen local communities one small business loan at a time. For every deal we fund, we donate 10 meals to Feeding America!

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About the Author, Matt Carrigan

Matt Carrigan is the Content Writer at National Business Capital & Services. He loves spending every day creating content to educate business owners across every industry about business growth strategies, and how they can access the funding they need!


Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advise from National Business Capital and the author. Do no rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely in this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there maybe errors, omissions, or mistakes.