What are short-term business loans?
In short-term business loans, businesses can borrow a set amount of money based on the cash flow they must repay with interest at regular intervals. Short-term financing is designed to repay much more quickly than other types of loans, often within 3 to 15 months. Short-term business loans are versatile, with amounts ranging from $2.5K to 500K, while a larger amount is likely possible with a secured loan.
Due to the shorter loan terms, it is easy to apply and qualify for a short-term business loan. It just takes a few clicks on your laptop or mobile to apply and will transfer to your bank account in as few as one day.
This handy and flexible small business funding can be used for a variety of financing short-term needs – including purchasing new equipment, managing cash flow, expanding your business, stock purchases, financing a short-term project, paying off expensive debt, or even capitalizing on a new business opportunity.
Traditional lenders, such as banks, typically elude giving short-term loans. However, a few alternative lenders, like BitX Funding, offer short-term loans to meet a variety of small business use cases. Some business owners who have long-lasting relationships with their banks sometimes may succeed in getting a short-term loan.
Qualification Requirements for Short-Term Loans
Since the amount of risk is lower, lenders are willing to offer short-term business loans more often than long-term loans. If you have been in the business for a while and have a healthy, consistent cash flow, you have no trouble getting the loan. However, if you have just started your business and are not in a strong position to grow, you may have a particularly tough time getting your application approved.
You should also know that the amount you can borrow and the interest rate you will pay will depend on the type of business you operate, annual turnover, business history, and the overall health of your business.
Though qualifying for a traditional term loan involves a few different factors, the following are some that matter the most:
Business History
In business 1 year >
Credibility
Must have a minimum credit score of 550 >
Annual Revenue
$100,000 > in annual revenue for your business
Business Type
No sin-based business, firearm, attorneys, check cashing, lenders, ext.
Besides that, you may need to provide some evidence of your business’s recent performance, such as several months of bank statements. You should also be prepared to provide a record of a positive daily bank balance.
While these above factors play an important role in getting a short-term business loan for your small business, it is not the only thing considered when making approval decisions. Depending on the lender, there are many things that can affect your eligibility. So, discussing your requirements with your lender and determining what works best for your small business is vital.
How to Apply for Short-Term Business Loans?
Well, look no further than short-term business loans. In this guide, we will let you know everything you need to know about short-term business loans.
Applying for short-term loans online is one of the smartest ways to get approved and only takes a few clicks on your laptop or smartphone. Online lenders such as BitX Funding approve your loan in just a day or two after you apply, helping you obtain fast business finance.
When applying for a short-term business loan, be clear with your calculation of how much you need and how much you can afford to repay.
Go for alternative financing options before heading straight to the bank. Also, make sure that you have a positive cash flow and a healthy daily bank balance.
Documents you need before applying:
- Driver’s License
- Credit Card Processing Statements
- Bank Statements
- Voided Business Check
- Credit Score
- Business Tax Returns
Why Consider Short-Term Business Loans?
Short-term business loans are the best financing strategy for small business owners who need a quick cash injection. Though this sought-after lending option has many perks, the most obvious benefit of a short-term loan is that it can provide you with fast capital for your operations. In addition, the documentation and application process are easier and faster than a traditional bank loan. This can be extremely useful if you have not received a customer payment yet, are looking to buy more inventory, or want to improve issues with cash flow.
Advantages of Short-Term Business Loans every small business owner needs to know:
- You should receive your fund quickly – take not more than 24 to 48 hours
- The application process is simple – it requires less paperwork, and the application can usually be completed online
- Due to its shorter repayment period, you pay less interest
- You can improve your credit score by making payments on time
- These loans are flexible and can be used for virtually any business purposes
- Even if you have bad credit, you can apply
Why You Need Short-Term Loans for Your Small Business?
Whether slow processes are holding your business back or outdated equipment is breaking productivity, you can use a short-term loan for nearly any purpose as a small business owner. You might think of using a short-term business loan if you’re:
- A seasonal business that needs capital to prepare for the busy season
- Looking to buy new technology or equipment or inventory
- Planning to launch a new product
- About to expand into a new market
- In need of capital to meet the immediate demands of payroll
- Looking to hire and train employees
- In need of extra money to market your products or services
- Preparing for the upcoming tax season
- Refinancing other short-term debts at more favorable terms
How do Short-Term Business Loans Work?
Short-term business loans work as traditional term loans. There are several types of short-term loans, but the fundamentals are almost the same in most cases.
You are given a set amount of money upfront by the lender that you agree on a term to pay it back in full, along with the interest and lender’s fee.
Once you agree on the amount you can afford to borrow with your lender, the lender will usually carry out a credit check to assess your company’s financial health. You receive your loan if your loan application successfully meets the lender’s short-term loan criteria. You begin making repayments on the agreed date until the loan is repaid in full.
As the repayment period is shorter, the loan amount may be smaller, interest rates higher, and you often must pay back on a daily or weekly instead of a monthly schedule.
Though these loans are faster to apply and easier to get, always keep in mind that they are one of the most expensive small business financing options available on the market.
But why do short-term business loans cost more?
In short, you are paying the price for speed and convenience. The short repayment period and higher rates generally offer less paperwork and faster funding than many other small business loans.
What do Short-Term Business Loans Cost?
Short-term financing is designed for speed rather than long-term usage. And you will pay for shorter repayment periods, lower principal amounts, and higher rates. These small business loans often come with factor rates instead of interest rates. A factor rate is a percentage that shows how much extra you owe on loan. Unlike an interest rate, the factor rate is expressed in decimal figures.
A bit confused?
Do not fret – let us explain with an example.
Let us borrow $100K, and the factor rate is 1.31; multiplying the two numbers together will show the exact amount of money you will have to pay back on loan i.e. $1,310K. Isn’t it a piece of cake?
If the repayment period is of 12 months and you must repay the amount every week, that is 48 payments you would have to make.
BitX Funding is the online marketplace for small business owners looking to fund a project. We specialize in connecting small business owners with lenders who will compete for your business. We believe small business owners drive the economy and are passionate about helping your company reach its full potential.
You can reach a loan specialist toll-free at 1-800-824-2407, or email at [email protected], or apply online here, and we can guide you on which loans are the best fit for your business.
