Find the Lowest Rates on Short-Term Business Loans

What is a Short-Term Business Loan?

By Meredith Wood, Editor-in-Chief

Last Updated: July 11, 2019

Short-term business loans are lump sum loans that are designed to be paid back in less than 18 months. They can be a flexible financial tool, best used for financing short-term needs—including managing cash flow, dealing with unexpected needs for extra cash, bridging larger financing options, paying off expensive debt, or taking advantage of unforeseen business opportunities.

Maximum Loan Amount
$2.5K - $250K
Loan Term
3 to 18 months
Interest Rates
Starting at 10%
Speed
As fast as 1 day
Pros
  • Set payment structure
  • Limited paperwork
  • Bad credit is accepted
  • Suitable for a wide range of business purposes
Cons
  • Annual costs higher than those of longer-term loans
  • Weekly payments could prove difficult to make for businesses with sporadic revenue
Compared to other loan types
Loan types Max amount Interest rate Speed
Short-Term Business Loan $2.5K - $250K Starting at 10% As fast as 1 day
SBA Loan $5K - $5M Starting at 7.75% As fast as 2 weeks
Business Term Loan $25K to $500K 7 - 30% As fast as 2 days
Business Line of Credit $10K to over $1M 7% - 25% As fast as 1 day
Invoice Financing Up to 100% of invoice value 8 - 30% As little as 1 day
Startup Business Loan $150K 7.9 - 19.9% As fast as 2 weeks
Equipment Financing Up to 100% of equipment value 8 - 30% As fast as 2 days
Merchant Cash Advance $2.5K - $250K 1.14 - 1.18 As little as 2 days
Personal Loan for Business $35K 5.99 - 36% APR As fast as 1 day

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Who Qualifies for Short-Term Business Loans?

Here’s the low-down on qualifying:

Short-term business lenders emphasize cash-flow more than lenders of traditional term loans. Strong cash-flow can sometimes overcome other financial information that would disqualify a business for a traditional term loan.

But you should also know that the interest rate you’ll pay and the amount you can borrow will depend on your annual revenue, business history, and personal credit rating.

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Most customers who were approved had

**Based on past Fundera customers

Annual Revenue
Over $150K
Credit Score
600
Time in Business
Over 2 years

How Do You Apply for Short-Term Business Loans?

Short-term business loans are exclusively applied to online. For that reason, a short-term loan application is a fast and easy process. You’ll likely need to provide just your credit score, bank statements, and tax returns. Most short-term lenders can fund business owners just a day or two after they apply.

Documents you need:
  • Driver's License
  • Voided Business Check
  • Proof of Ownership
  • Bank Statements
  • Credit Score
  • Personal Tax Returns

How Do Short-Term Business Loans Work?

Sometimes your business just needs extra cash—right away.

But can you actually get financing that fast?

Fundera helps businesses get funding in all shapes and sizes… Including loans that make it to your bank account before you know it.

Let’s take a closer look at how these smaller short-term loans for business can make a big difference when you need capital in a pinch.

Short-Term Loans: The Fundamentals

Short-term loans work like traditional term loans: predictability is the name of the game.

Overall, it’s a straightforward loan product.

You receive a set amount of cash upfront that you agree to pay back, along with the lender’s fees and interest, over a predetermined period of time.

But with short-term loans for business, loan amounts may be smaller, the repayment period drastically shorter, interest rates higher, and you often pay the lender back on a daily or weekly instead of monthly schedule.

On the flip side, they’re usually easier to qualify for, faster to apply for, and quicker to fund.

One thing to keep in mind, though: short-term loans are some of the most expensive loans available to small businesses.

Why do they come with high interest rates?

The speed and ease of application makes a short-term business loan deal riskier for the lender. They spend less time vetting your business and checking that you’ll be able to pay back on time and have a history of doing so. Because short-term loans tend to fund for riskier borrowers, they tend to have more expensive interest rates.

Although they make sense for plenty of situations, the best loan for your business is always the lowest-cost loan. Do your research, apply for a few different loan types, and if it comes down to it, make sure your business has a clear plan on how it will pay back short-term debt.

When to Use a Short-Term Business Loan

Anyone who runs a small business knows: it takes money to make money.

That makes access to working capital essential—whether you’re just starting out or have big plans to expand your existing business.

In fact, just about every business needs extra working capital from time to time. When that’s the case, a short-term loan might be the best option.

What if you have the opportunity to fill a massive order for a customer who can pay you in 60 days, but your supplier needs to be paid in a week?

Without access to cash, you might have to pass up that golden opportunity.

But with a short-term business loan, you could get the funding you need to fill that order—and then pay your loan back when your customer pays you.

Or maybe you have a seasonal small business that needs an influx of capital just before the holiday season.

Getting a short-term business loan would give you the funding to cover promotional expenses and build your inventory well before the holidays—even though you might be short on cash right now.

Other businesses find that a short-term loan is a great way to fund business expansion, refinance other short-term debts at more favorable terms, pay upcoming taxes, put extra cash into their business to take advantage of new opportunities, or meet pretty much any short-term financing need.

Fast financing gives you the flexibility to spend how you need.


What Will a Short-Term Loan Cost You?

Short-term business loans are paid off quickly, most often with daily payments.

On the one hand, you don’t have to worry about that debt for too long.

But on the other, repaying a short-term loan in daily or weekly installments could cut into your cash flow.

Short-term loans also often come with factor rates instead of interest rates: a factor rate is a number that, when multiplied by your total loan amount, gives you how much you’ll be paying the lender back.

A bit confused?

Don’t worry—let’s explain with an example.

Short-Term Business Loans & Factor Rates

Say you’ve taken out a $100K short-term business loan and the lender has a 1.18 factor rate.

1.18 multiplied by $100K is the total amount you’ll need to pay back: $118K.

Then we’ll assume your lender will want you to pay back the total amount in 12 months, like with most short-term loans.

Given that there are 22 payment days in a month, that’s 264 payments you’d have to make.

And how much are shelling out every day for this loan?

The amount of each of those payments would be $446.96, making your actual APR 33.54%—quite a bit higher than the rates for traditional term loans.

Why Do Short-Term Business Loans Cost More?

Short-term business loans come with higher price tags…

But why?

Simply put, you’re paying the price for speed and convenience: fast cash is expensive cash.

Higher rates and shorter terms are able to generally offer reduced paperwork and faster funding times than traditional term loans.

But expensive debt can be better than no debt if your business needs the money to take advantage of an opportunity... Assuming you know you can afford to pay it back. Just because they’re pricey, short-term loans don’t need to be a bad investment.

In fact, sometimes a short-term loan is exactly what your business needs to grow.

Plus, short-term business loans can also be refinanced into longer-term products down the road if your business’s financials improve.


Editor's Note: Fundera exists to help you make better business decisions. That’s why we make sure our editorial integrity isn’t influenced by our own business. The opinions, analyses, reviews, or recommendations in this article are those of our editorial team alone.