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Short Term Business Loans: Fast Commercial & Startup Funding

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short term business loans

Short Term Business Loans: What You Should Know

Financing your small business isn’t always easy, and applying for a loan with a bank can be even harder. Most favor larger companies with an excellent track record and credit history. If this doesn’t describe you, fortunately, all is not lost.

Enter the short term business loan: a quicker alternative to more traditional long term loans. By providing a fast cash infusion, you can help plug the holes in your daily business operations.

However, these loans do have some disadvantages and are not for everyone. Read on to learn what a short term loan is, and if it’s right for your business.

What Are Short Term Small Business Loans?

Short term business loans refer to any funds borrowed to cover short term or immediate business expenses. These often involve paying for the daily operations of a business. However, they can also be used to capitalize on business opportunities.

As the name suggests, short term loans for a business have shorter repayment periods, usually around 18 months or less. It means that the monthly payment is higher since it’s compressed to a shorter schedule.

In other words, this type of loan is more expensive with less favorable terms. That’s because a lender might deem you or your business a risk, so they need to make it worth it on their end. The upside is that because the approval process is fast, short term business loans are an ideal alternative for businesses that don’t qualify for other loan types.

Short Term Loans vs. Long Term Loans

The main difference between short term commercial loans and the more traditional long term loan is, of course, the loan period. The latter have repayment terms measured in years—usually 5 – 10.

More importantly, these two loan types also have different interest rates. Short term business loan rates tend to be higher than long term rates because of the added risk. During a recession, however, the tables are flipped. Short term loans offer more attractive interest rates than long term ones, to help business and jumpstart the economy.

Rates are based on the current prime interest rate, which is the “best rate” given by banks to clients with exceptional credit standings. For short term business loans, it’s adjusted depending on your level of risk as assessed by the bank during your application.

Short Term Loans for Startup Business

Short term business lending is crucial for startups, who need a larger capital to get a product or service into the market quickly.

The problem with a startup is that they’re new companies with an unproven track record. To qualify for a long term loan, businesses need to show cash flow statements and financial projections as proof of financial capability for the next 3-5 years. For newer companies, this isn’t always possible. Most banks will only offer a secured loan, which requires that the startup company put something up as collateral.

Short term business loans are the answer to this problem. While they have more significant monthly payments and higher interest rates, they also have the advantage of quick and easy approval. For most startups, this is better than no funding at all.

Is a Short Term Loan Right for Your Business?

Despite their shortcomings, short term business loans are the preferred financing in certain situations. Contrary to what most believe, a short term loan is best when you know you’ll be able to pay it back quickly. It’s NOT recommended when you’re in a financially unstable position, because the high interest rates and repayment amounts will cripple you.

This type of merchant funding is best used to fill in holes in your cash flow. If you’re short in funds right now but expect a significant revenue chunk coming in later on, getting a loan can help keep your business afloat until then.

A short term loan can be used to take advantage of peak seasons during the holidays. The extra cash infusion enables you to hire more staff or stock up on inventory in anticipation of the demand. 

How to Get a Short Business Loan

The problem most small businesses face is that they’re usually not attractive to big banks, who prefer bigger, more established companies. What’s more, these institutions typically have stricter requirements, longer approval times, and unfavorable terms.

That’s where third-party lenders like L3 Funding come in. Our range of short term financing and business cash advance options give your company quick access to funding, depending on the situation. We don’t require collateral, and our repayment terms are reasonable and flexible.

To learn more about the L3 Funding’s short term loan products, visit our secured business line of credit page.

No matter your business’s size, short term loans give you a fantastic alternative for funding quickly and easily. L3 Funding is the go-to financial resource for small businesses in the US. Call us today or apply now!