What Are the Best Short Term Business Loan Options & How They Work?

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Key Highlights

• Short-term business loans offer fast funds to cover immediate business expenses
• These loans are typically repaid within 36 months or less
• Online lenders provide these business loans with flexible qualification requirements
• Some popular options for short-term loans include lines of credit, merchant cash advances, invoice financing
• It is important to evaluate your business loan choices based on criteria such as eligibility, interest rates and fees, and repayment terms

Introduction

When running a small business, there may be times when you need immediate funds to cover unexpected expenses or take advantage of a business opportunity. In such situations, these loans can be a valuable resource. These loans provide fast access to capital that can be repaid within a shorter period of time, typically 36 months or less.

Unlike traditional bank loans, which may have strict qualification requirements and a lengthy application process, short-term business loans are often offered by online lenders. These lenders have more flexible qualification criteria and can provide funding within a matter of days, making them an attractive option for small businesses in need of quick financing. With cash available within two business days, these loans are a great choice for businesses in need of fast funding.

In this blog, we will explore the key features and benefits of business loans, as well as some of the top loan options available in the market. We will also discuss the factors to consider when evaluating your business loan choices, such as eligibility criteria, interest rates and fees, and repayment terms. By the end of this blog, you will have a better understanding of the best loan choices for your small business.

Understanding Short Term Business Loans

Small businesses often face fluctuating cash flow and unexpected expenses. In such situations, these  loans can provide the necessary funds to cover immediate financial needs. These loans are typically offered by online lenders and have a shorter repayment period, usually 36 months or less. Understanding the key features and terms of business loans are crucial for small business owners. This includes factors such as loan amounts, interest rates, credit history requirements, and repayment terms. By familiarizing yourself with these details, you can make an informed decision when choosing the best short-term business loan for your specific needs.

Key Features and Terms

Short-term loans come with various key features and terms that determine the loan amount, eligibility, and repayment structure. When considering a short-term loan, it is important to understand these factors to make an informed decision.

Loan Amount: Short-term loans typically offer smaller loan amounts compared to long-term loans. The loan amount will depend on various factors such as your annual revenue, credit history, and the lender’s policies.

Credit History: Lenders may consider your personal and credit history when assessing your eligibility for a short-term loan. A good credit history increases your chances of securing a loan with favorable terms, while a poor credit history may result in higher interest rates or limited loan options.

Repayment Terms: Short-term business loans have shorter repayment periods, usually ranging from a few months to a year. Repayment terms can vary depending on the lender and the loan amount. It is important to consider the repayment terms and ensure that you can comfortably make the required payments within the specified timeframe.

By understanding the loan amount, credit history requirements, and repayment terms, you can choose a business loan that best suits your financial needs and capabilities.

What Are The Best Short-Term Business Online Loan Options?

When it comes to short-term business loans, there are several options available in the market. The best loan program for you will depend on factors such as loan amount, credit history, annual percentage rate and repayment terms. Some of the top short-term loan options include lines of credit, merchant cash advances, invoice financing. Each of these options has its own unique features and benefits, making it important to evaluate them based on your specific needs.

Business Line of Credit: Flexibility for Businesses

A business line of credit , also known as a LOC, is a flexible financing option that provides access to a predetermined credit limit that can be used as needed. It offers the convenience of accessing funds whenever required without the need for multiple loan applications. Here are some key features of a line of credit:

• Unsecured Line of Credit: Unlike traditional loans that may require collateral or personal assets, a business line of credit is often unsecured, meaning you don’t need to provide any assets as security for the loan.
• Flexibility: With a LOC, you have the flexibility to borrow and repay funds as needed, up to your approved credit line. This allows you to manage your cash flow efficiently and cover unexpected expenses or take advantage of business opportunities.
• Cash vs Credit: A LOC allows direct cash transfers to your bank account, catering to various expenses. A business credit card primarily facilitates purchases via a physical card and offers no direct cash to your bank account.

A line of credit can be a valuable financing option for businesses that need flexibility in managing their day to day cash flow and accessing funds as needed. It is important to choose a reputable lender that offers favorable terms and conditions for your specific needs.

Merchant Cash Advances: Business Loans for Bad Credit

Merchant cash advance are an excellent option for those seeking short term loans for bad credit. They offer swift access to funds, leveraging a business’s future sales as collateral, making them an ideal short-term funding solution.

Here are some key features of merchant cash advances:

• Quick Funding: Merchant cash advances offer fast funding, with some funders provide funds within 24 hours of approval. This makes them an ideal option if you are in need of immediate capital.
• Projected Revenue: The amount you can borrow with a cash advance is primarily focused on a percentage of your future sales. So if you have strong cashflow, with daily sales this could be a great fit.
• Factor Rate: Instead of an interest rate, merchant cash advances are often charged a factor rate. This rate is a multiplier applied to the advance amount to determine the total repayment amount. While this makes it easy to calculate the total cost of the loan, it can result in higher overall repayment amounts compared to traditional loans.
• Bad Credit: Since Merchant Cash Advances are based on your cashflow, having bad personal credit will not automatically have your application declined.

Merchant cash advances can be a convenient funding solution if you have a high volume of sales. However, it is important to consider the factor rate and repayment terms before opting for this type of financing.

Invoice Financing: Leveraging Unpaid Invoices

Invoice financing, also referred to as accounts receivable financing, serves as a beneficial solution for obtaining a bad credit short term loan. It allows businesses to leverage their outstanding invoices as collateral to access funds swiftly.

Here are some key features of invoice financing:

• Cash Flow Solution: Invoice financing helps businesses bridge cash flow gaps by providing immediate access to funds that are tied up in unpaid invoices. This can be particularly beneficial if you have long payment cycles or struggle with cash flow management.
• Good Credit Not Required: Invoice financing is based on the creditworthiness of your customers, not your business’s credit history. This makes it accessible with limited credit history or poor credit scores.
• Repayment Structure: With invoice financing, the lender advances a percentage of the invoice amount, typically around 80-90%. Once the invoice is paid by your customer, the lender deducts their fees and releases the remaining funds to you.

Invoice financing can be a valuable financing option for businesses that rely on invoicing for their revenue. It provides a way to access immediate funds without waiting for customers to pay their invoices, improving cash flow and allowing for smoother business operations.

Unsecured Loans: Convenient Access to Funds

Unsecured small business loans facilitated by online lenders, provide convenient access to funds without requiring any collateral. By receiving short term online loans, borrowers can enjoy a seamless, fully online application process for quick and hassle-free financing solutions.

Here are some key features of unsecured loans:

• No Collateral: Unsecured loans do not require collateral, so you do not need to risk your assets although this makes the loan riskier for lenders, be sure to compare rates when considering this option.
• Online Lender: Online lenders provide a streamlined application process and quick funding compared to traditional banks. They use a convenient, secure website application to process large volume of sensitive information. This makes these online loans a convenient option if you are in need of immediate funds.
• Unsecured Term Loans: Term loans have a fixed repayment term, usually ranging from a few months up to 5 years without requiring collateral. This allows businesses to plan their repayment schedule and budget accordingly and avoid tying up assets with equity.
• Application Process: The application process for online loans is typically simple and can be completed fully online. This eliminates the need for extensive paperwork and makes the loan approval process faster.

Unsecured loans can be a convenient financing option if you prefer the flexibility, speed and efficiency of online lenders. When considering this loan type, it is important to compare interest rates, repayment terms, and any additional fees to ensure that you choose the best option for you.

Criteria for Choosing the Best Option

When evaluating your loan choices, it is important to consider specific criteria to determine the best option for you. Some key criteria to consider include:

• Minimum FICO Score: Some lenders may have minimum credit score requirements. Check your credit score and choose lenders that align with your credit history.
• Application Process and Funding Time: Evaluate the application process for each lender and consider how quickly you need the funds. Some lenders may provide faster funding compared to others.
• Repayment Terms: Assess the repayment terms offered by each lender, including the length of the loan and the frequency of payments. Consider whether the repayment terms align with your cash flow and financial capabilities.
• Interest Rates and Fees: Compare the interest rates and any additional fees associated with each loan option. Consider the total cost of the loan and choose the option that offers the most favorable terms.

By considering these criteria, you can narrow down your options and choose the best short-term loan option for your specific needs.

Comparing Interest Rates and Fees

When evaluating short-term loan options, it is important to compare the interest rates and any additional fees associated with each loan. This will help you assess the total cost of the loan and determine the most cost-effective option for you. Here is a list of our partners comparison of interest rates and fees for some popular short-term options: 

Lender	Interest Rate Range	Additional Fees
Upstart	Starting at 12%	Origination fee of 2-5%
American Express Line of Credit	Starting at 6.89%	No Additional Fees

Comparing interest rates and fees will give you a clear understanding of the total cost of each loan option and help you choose the most affordable option for you.

Understanding Repayment Terms

When evaluating short-term loan options, it is important to understand the repayment terms offered by each lender. Here are some key factors to consider:

• Frequency of Payment: Assess the payment frequency required for each option and ensure that it aligns with your cash flow and financial capabilities. Some options may offer daily, weekly or monthly payment options.
• Prepayment Penalties: Some lenders may charge prepayment penalties if you repay the loan before the agreed-upon term. Consider whether this is a factor you need to be mindful of before choosing a loan option.
• Loan Terms: Evaluate the length of the loan term offered by each lender and consider whether it suits your needs. Shorter loan terms may result in higher monthly payments, but they also mean you can repay the loan faster.

Understanding the repayment terms will help you determine the most suitable loan option for your financial situation and repayment preferences.

Application Process for Short-Term Business Loans

The application process for short-term business loans can vary depending on the lender, but the overall process is often streamlined and straightforward. Here are some general steps involved in the application process:

• Preparing Your Loan Application: Gather the necessary documentation, such as financial statements, bank statements, and business plans, to support your loan application.
• Submitting the Application: Complete the online application provided by the lender, providing accurate information about your financials and credit history.
• Documentation Required: Be prepared to submit additional documentation, such as personal guarantees, bank statements, and financial statements, to support your loan application.
• Tips for a Successful Application: Pay attention to factors such as your personal and business credit score, as well as the lender’s eligibility requirements, to increase your chances of a successful application.

With AMP Advance’s online application process, businesses can secure multiple funding options seamlessly. The streamlined process ensures convenience and efficiency, allowing applicants to access various financing solutions without undergoing a hard credit pull, thus preserving their credit score while exploring funding opportunities.

Benefits of Short-Term Business Loans

Short-term business loans offer several benefits for small businesses. Here are some key advantages:

Immediate Access to Capital:

Short-term loans provide quick access to capital, allowing businesses to address immediate financial needs or take advantage of time-sensitive opportunities.

Bridging Cash Flow Gaps:

These loans may help you bridge temporary cash flow gaps, ensuring smooth operations and uninterrupted growth.

Financing Emergency or Opportunity:

These loans can be used to fund emergency expenses or seize business opportunities that require immediate capital. By leveraging the benefits of short-term business loans, small businesses can overcome financial challenges and drive growth.

Risks and Considerations

While short-term business loans offer several benefits, it is important to consider the lender risks and potential drawbacks. Here are some key considerations:

Higher Interest Rates and Costs:

Short-term business loans often come with higher interest rates and fees compared to long-term loans. This can increase the overall cost of borrowing.

Impact on Credit Score:

Borrowing and repaying short-term loans can impact your business’s credit score. Late payments or defaulting on the loan can have a negative impact on your creditworthiness.

Necessity of a Solid Repayment Plan:

Short-term loans require a solid repayment plan to ensure timely payments. Failing to make the required payments can result in additional fees, penalties, and damage to your business’s financial health. By considering these risks and implementing sound financial management practices, you can mitigate potential drawbacks and ensure successful utilization of short-term loans.

Final thoughts

Short-term business loans offer quick access to capital but come with higher interest rates. It’s crucial to evaluate options based on your needs and repayment capabilities to make the best financial decisions. Understanding the terms, fees, if its an unsecured loan and repayment plans are vital for making an informed decision. While these loans can bridge cash flow gaps and finance emergencies, having a solid repayment strategy is key to avoid credit score impacts. If you’re considering short-term loans, compare offerings, assess risks, and ensure eligibility. Get quotes from various lenders to make a well-informed choice for your financial health.