7 Best Short-Term Business Loan Options

How To Get A Short-Term Business Loan

Everything You Need To Know

When your business is in need of a short-term loan, stress and urgency can build up quickly. And most companies find themselves in need of short-term cash at least once, so it’s a problem many entrepreneurs face. A thriving short-term loan market stands ready to provide a variety of funding options for companies that need a quick bump. Typically, short-term loans are funded rapidly and can be used for a wide variety of corporate purposes. Rates and terms can be all over the map and are based on the type of loan selected, the requirements of the individual lender, the credit quality of the borrower and the cash flow of the underlying business.

More so than with many loans, cash flow can be an important determinant in qualifying for short-term small business loans because these loans are paid back rapidly. If a business can’t afford to start making payments immediately, it can be harder to qualify. This makes short-term loan financing much easier to find for established businesses with predictable cash flows. However, other more traditional loan variables are also taken into account, so even startup companies or those with bad credit may find they have avenues to receive short-term financing.

Whether your business needs a short-term loan to buy new equipment and expand or just to fund day-to-day operations, there are financing options that can serve your needs. Take a look at these seven top short-term business loan financing options and see if they can help you find a lender that meets the needs of your company.

Startups

How to Get Short-Term Business Loans for Startups

Startups are their own category when it comes to obtaining financing. For many lenders, startups aren’t worth the risk when it comes to extending loans. Even with a great management team or phenomenal business idea, when it comes down to dollars and cents, startups have a much greater chance of defaulting on a loan than companies with stellar balance sheets that have been in business for many years. Since lenders are in the business of minimizing risk, it can be hard for startups to obtain financing, even for short-term business loans. In many cases, your best bet as a startup is to look for alternative sources of capital; one option is Seek Business Capital.

How Does It Work?

Seek Capital can provide both consulting services and funding procurement to startup businesses across America. Funding through sources like Seek Capital can often be achieved rapidly, with applications taking a matter of minutes and responses coming as quickly as a few hours. For short-term financing needs, a Seek Capital consultant can work with you to determine the best financing options for your business.

What Are the Rates?

If you’re a startup, you should generally be prepared to pay a higher rate for your short-term business loan. This isn’t a personal judgment, it’s just a risk-reward calculation. As your company doesn’t have a long operating history, lenders have a harder time making an accurate assessment about your ability to repay a loan.

One of the advantages of working with a specialized lender or finance consulting company is that they can often work with newer companies to arrive at a flexible payment structure that compensates the lender for the risk taken but isn’t so onerous that the company has no chance of paying it off. Seek Capital, for example, can offer a 0% introductory APR for many borrowers who qualify, with a variable rate thereafter.

Am I Eligible?

Eligibility for any loan can be tricky for a startup company. Without the financial pillars that most lenders want to see — a long operating history and a consistent cash flow — startups can typically expect an uphill battle when it comes to funding.

However, this doesn’t mean that startups can never get loans. On the contrary, every successful business that exists today was at one time a startup that undoubtedly got some type of funding along the way. Your job as the owner of a startup is to collect enough documentation to show that your company can handle its financial obligations.

An important step in that process is to have a thorough, well thought-out business plan. Though not always required by all lenders, having a business plan ready shows that you’re serious and prepared. Your business plan is a financial road map showing how your business is going to reach its goals along the way. This is critical not just for your lenders to see, but also for you to follow as a growing company. In some cases, it can be the most important step in the process of obtaining a short-term business loan as a startup. At the end of the day, bankers respond to numbers, and if you have a financial plan in black and white, it can help convince others of the future success of your business.

After you write your business plan, your next best step is to get your personal finances in order. Since your business doesn’t have a financial history, lenders will run a credit check to see if you’ve got the ability to pay back both the principal amount and the interest on your loan. The longer you’ve made on-time payments — and the lower your outstanding debt — the better your score is likely to be. If you’re coming up short in either of these areas, do your best to clean things up before you apply for a loan.

Companies like Seek Capital can often be more flexible about the financial situation of a startup company, which can improve your chances of obtaining a loan. Regardless of the company you work with, however, you’re only likely to qualify for a loan with good terms if you’ve got your credit in order.

How Much Can I Get?

If you’re just looking for a general loan for your startup business, you may be able to get a much larger loan amount than with an equipment-specific loan for example. At Seek Capital, borrowers can request financing of up to $500,000, but the amount you’re approved for depends on if you’re a qualified borrower. However, it’s typically easier to get approved for smaller funding amounts, so requesting an amount that will cover just the expenses to cover you need may be a safer bet. Ultimately, the financially prudent move when borrowing money from anyone is to only request an amount that you can realistically pay back. Of course, a loan is a loan, and the amount you get approved for will always depend on factors such as your income and personal credit history.

What Documents Do I Need?

To get a short-term business loan for a startup, you’ll need to produce some type of evidence of your creditworthiness. Since new companies don’t have detailed business financials, you’ll have to rely on the business plan for your new company and your own personal credit profile. Documents you should be expected to provide include:

• Information about how you intend to use your short-term business loan
• Your personal credit report and your Social Security number
• Your startup business plan, including anticipated cash flow and future profit potential

As a startup company without a business track record, your borrowing options will be limited. Beyond large international banks, you’ll need to look for alternative lending sources such as Seek Capital. These types of companies focus on cultivating relationships with startup businesses, so you’ll likely have an easier time finding a short-term business loan through them.

What Are the Terms?

Short-term business loans are a good option for startup companies because lenders often won’t finance startups for long-term loans. A long-term loan for any business involves more risk for a lender, but this is particularly true in the case of a startup. Although you can always negotiate terms with your lender, you should probably anticipate that your short-term business loan may only last a matter of months, or a few years at the most. Once you’ve demonstrated the ability to pay back a short-term loan, you may have a better chance of extending your loan terms going forward.

Companies With Bad Credit

How to Get Short-Term Business Loans for Companies With Bad Credit

Companies with bad credit can struggle to find a short-term business loan. The hallmarks of bad credit include taking on too much debt or failing to pay back loans in the past. Both of these are huge red flags for lenders. Since the odds that you won’t be able to pay back your short-term business loan are higher than with other borrowers, lenders will naturally shy away from companies with bad credit. In these scenarios, a high-interest, short-term loan might be the only option.

How Does It Work?

A short-term loan works just like most traditional loans, with a fixed term, a set interest rate and regular payments until the loan matures. Short-term loans are often extended to companies with bad credit because a longer loan term would be too risky for most lenders.

What Are the Rates?

Short-term loans aren’t necessarily associated with the highest interest rates, but when you add in a company with bad credit, they can jump in a hurry. Companies with bad credit aren’t typically eligible for the low teaser rates you may see in advertisements, so if your company falls into this category, you should be prepared to pay up for the privilege of accessing short-term financing.

That being said, rates can vary dramatically from lender to lender. You can often expect to pay anywhere between 8 percent to 20 percent or more for short-term financing with a bad credit history. To get a rate near the lower end of this range, you’ll have to demonstrate significant cash flow and may have to put up substantial collateral.

Am I Eligible?

How Much Can I Get?

What Documents Do I Need?

What Are the Terms?

Expanding Company

How to Get Short-Term Business Loans for Expanding Companies

Expanding companies often need financing to build new plants or buy additional equipment Under this scenario, short-term financing can often be relatively easy to acquire. Companies don’t grow unless they have rising cash flows, a factor that makes them attractive to lenders. Companies acquiring additional equipment can also use those new purchases as collateral, which reduces the risk profile for lenders.

How Does It Work?

Equipment financing loans are often “good debt” for a company because they amount to an investment in a revenue-generating property. Since ideally new equipment results in greater efficiency or higher revenue, the cost of equipment financing can usually be absorbed. Lenders will have a lien against the equipment you finance in case of default, but as long as you pay off your loan in full, you’ll own it outright at the end of your finance term. If you prefer, you can often lease equipment rather than finance it; in this case, you won’t own the equipment at the end of the lease term but will instead return it to the dealer.

What Are the Rates?

Rates will depend on your credit profile and the type of equipment you’re financing and can vary considerably. Since equipment loans are collateralized, you can often get a lower rate than with a standard unsecured loan. You may be able to get a short-term equipment financing loan for rates between about 3 percent and 7 percent.

Am I Eligible?

Even if your company only has average credit, an equipment loan can be an easier way to qualify for short-term financing. The value of your equipment can be used as collateral to back up the payback of your loan, meaning your lender will be taking on lower risk, leading to higher approval odds. If you’re willing to put up a larger down payment, this can increase your odds still further.

Imagine a scenario in which you take out a $50,000 equipment loan but aren’t willing to put any money down. If you were to default soon after you took out the loan, the lender most likely won’t be made whole, as the value of the equipment will have already depreciated. With a $10,000 down payment, however, your lender might not lose any money at all. Since lower risk to a lender equals a higher chance of approval, consider raising your down payment if you’re having trouble getting financing.

How Much Can I Get?

If you’re taking out a short-term business loan to finance equipment, you can usually borrow up to 100 percent of the value of what you’re financing. If your business has good credit and a history of rising profits, you can often borrow even more than the value of your equipment. And in some cases, this can make sense, as you might need additional funding to either install or operate your new equipment. However, you shouldn’t take additional money simply because it’s offered by your lender.

What Documents Do I Need?

To get a short-term equipment loan, you may not need as much business or personal documentation as if you were, say, a startup company or a business looking for an unsecured line of credit. Since your equipment will act as collateral, your lender is protected from loss to at least some degree. However, you’ll still need to prove that your business can afford to pay back the loan. Documents you can expect to provide include:

• Personal and business tax returns
• Business and personal bank statements
• Business balance sheet, including profit & loss statements
• Proof of ownership

If you want to have the best odds for approval, don’t just rely on the value of your equipment to act as collateral for your short-term business loan. Provide evidence that your company could afford to pay back your loan even without the collateral of your equipment and you’re much more likely to get approved for your loan.

What Are the Terms?

An equipment loan is just a variation of a traditional term loan. Although they can be flexible, you’ll generally only be able to finance equipment over its maximum useful life. For example, if you buy a piece of heavy equipment with a 20-year life, you can likely get a 20-year equipment loan. However, most equipment has a much shorter useful life, meaning you’re likely looking at a short-term business loan.

Seasonal Companies

How to Get Short-Term Business Loans for Seasonal Companies

Seasonal companies may or may not be open for business throughout an entire calendar year, but whether they are or they aren’t, there are peaks and valleys in their cash flow. Under these conditions, short-term business loans are often needed to keep a company solvent in between boom periods. Under this type of scenario, a structured loan is often a good choice when it comes to funding options.

How Does It Work?

Structured loans are flexible financing arrangements agreed to by lenders and borrowers. For seasonal companies, this can be an optimal funding option since these types of companies have irregular cash flows. During a company’s high season, increased cash flows can be used to make the bulk of loan payments. When times are lean, minimal payments can be made.

This can be a riskier option for lenders, as there’s no guarantee that a company’s cash-rich season is enough to cover its loan obligations. Yet, it’s still often preferable to a traditional loan, which requires the same monthly payments regardless of the company’s ability to pay. When cash flows are lean, this can make it difficult for a seasonal company to keep up with its loan obligations.

What Are the Rates?

Since structured loans carry higher risks for lenders, they typically come with a high APR. Generally speaking, structured loans can be had at rates between 8 percent and 25 percent. Companies with good long-term credit can often negotiate a lower rate, while newer companies, or those with spotty credit histories, will pay a rate at the top of the range. Loan rates in the high double-digits and other lender fees that raise the total loan cost can be crippling, so companies will need to assess if the value of the structured loan outweighs the high cost that comes with it.

Am I Eligible?

Eligibility for a structured loan depends on the business model of the lender. Some banks and financial services companies are reluctant to offer structured loans, while others may specialize in them. Although seasonal companies by definition have irregular cash flows, the more predictable your seasonality is, the more likely you can qualify for a structured loan.

How Much Can I Get?

One of the main benefits of a structured loan is flexibility. If you’re working with a good lender, you should be able to construct a structured loan that matches both the size and the timing of your company’s cash flow. Although you may technically be able to qualify for $100,000 or more by way of a structured loan, most lenders will only approve an amount large enough to cover your short-term business needs during your lean period.

What Documents Do I Need?

To get a structured loan as a seasonal company, you’ll need to show evidence of the cash flows that regularly come in during your high and low seasons. The more history you have, the more likely you are to be approved for a structured loan.

To that end, you should be prepared to show some or all of the following documents to your lender:

• Revenue statements for your business, including cash flow statements
• Your business balance sheet
• Profit and loss statements for your business
• Personal and business bank statements
• Personal and business tax returns
• Personal and business credit profile

For a seasonal business, the emphasis is more likely to be on cash flows than other factors. You should aim to show regular and predictable cash flows during the high season for your business that are more than enough to cover any loan servicing payments you’ll have to make.

What Are the Terms?

Structured loans are flexible financing arrangements, but that doesn’t mean they don’t have terms. Although larger payments are generally required during high season, when cash flows are at their peak, most lenders will also require at least minimum payments during lean periods.

The key to a successful structured loan arrangement is to work with a flexible lender. Perhaps you may be able to negotiate a balloon payment, if your company is growing and you anticipate rising cash flow in the future. Other lenders may allow you to pay as much as you would like during times of peak cash flow and possibly skip payments during low season. Since structured loans don’t follow traditional fixed-loan templates, you’ll have to negotiate an agreement with your lender that makes both sides happy.

Opportunistic Companies

How to Get a Short-Term Business Loan for Opportunistic Companies

An opportunistic company is one that uses short-term financing to strike rapidly and take advantage of fleeting growth opportunities. For example, a real estate investment company might need an instant cash infusion to put money down and secure a hot property before it’s grabbed by a competitor. For these types of rapid-fire investments made by functioning companies, invoice factoring from a fast funding company can be a good short-term loan strategy.

How Does It Work?

Invoice factoring is a way of getting paid in advance for money that you know is coming. Also known as accounts receivable financing, invoice factoring uses your incoming payments as collateral. When the revenue comes in, you pay back the cash you borrowed. Essentially, invoice finance amounts to a cash advance that you pay back as soon as your customers pay what they owe you. Invoice factoring is similar to a merchant cash advance, in which you receive money upfront in exchange for a percentage of your daily sales. However, invoice factoring is backed by accounts receivable rather than by your actual daily cash draw.

What Are the Rates?

On an annual basis, invoice factoring rates can be high. However, these types of loans are often paid off in 30 days or less, making the annual percentage rate seem a bit skewed. Depending on the consistency of your revenue and the relationship you have with your lender, you might see a monthly interest rate of between 1.5 percent and 4.5 percent for every 30 days.

Am I Eligible?

It can be easier to qualify for invoice factoring than a traditional loan because your incoming receipts act as reliable collateral for your loan. When you apply for a loan, you can show your lender in black and white what money is coming in and when, which greatly reduces the risk for the lender. The more predictable and consistent your accounts receivable have proven in the past, the more likely you are to qualify for invoice factoring.

How Much Can I Get?

In most cases, you can’t take out a loan for the entire amount of your accounts receivable. In any business, there are always stragglers who are late to pay — or who never pay at all — so a finance company won’t generally finance you for the full amount of your invoices. However, you may be able to finance 75 percent to 85 percent or slightly more of your incoming receipts. If you’ve got a proven track record of consistently getting paid on time, you may be able to get financing near the upper end of that range.

What Documents Do I Need?

Technically, invoice factoring is not a loan, which means you don’t need to provide the extensive documentation that you might with more traditional financing. The key to invoice factoring is the consistency of your cash flow. You’ll need to provide a cash flow statement to your lender along with evidence of your outstanding receipts. All of the other elements that may qualify you for a traditional loan, from a good credit history to increasing sales and profits, can sometimes help you negotiate a better rate. However, it is the quality of your accounts receivable that will generally qualify you for invoice factoring.

What Are the Terms?

The world of invoice factoring is fast and furious. In most cases, an invoice factoring transaction will last 30 days or less. There are a couple of reasons for this. For starters, the interest rate on invoice factoring is quite high when annualized, so you’ll want to pay that money back rapidly. Secondly, invoice factoring often occurs on a monthly basis, as new accounts receivable are generated and paid off.

Companies With 2-3 Years of Financials

How to Get Short-Term Financing For Companies With 2-3 Years of Financials

Once you’ve survived the first few years of business, you’ve proven that you have a viable business idea. You may not be wildly profitable, but to make it through the startup stage, you’re at least generating revenue and likely have an idea of how to balance out revenues and expenses. This can make your business more attractive to potential lenders. However, most newer companies aren’t quite “out of the woods” yet, and many of them find they need a capital infusion to continue growing. If your business is at this point, your best option may be an SBA business loan.

How Does It Work?

Although the SBA exists to provide assistance to small businesses, it doesn’t actually provide loans. Rather, SBA small business loans match borrowers and lenders. Lenders are attracted by the 85 percent loan guarantee that the SBA provides, protecting creditors from default. To protect itself from this same guarantee, the SBA has certain restrictions on who it allows to borrow through the program. Generally, this excludes true startups, which is why an SBA loan is usually more appropriate for businesses with a few years of experience.

What Are the Rates?

The SBA is specific about the rates that member institutions can charge on a bank loan. For larger loans of more than $50,000, the current rate is the prime rate + 2.25 percent, for loans maturing in less than seven years. Those looking for a longer-term loan will have to pay an additional 0.50 percent premium, for a total rate of prime + 2.75 percent. For smaller loans, lenders can charge an additional premium, amounting to 1 percent on loans under $50,000 or 2 percent on loans under $25,000.

Am I Eligible?

Even though the SBA may guarantee the bulk of your loan, you’ll still have to qualify for it just as you would if you applied directly with the member banks. Although banks’ underwriting standards may vary, the SBA publishes a list of the minimum qualifications for SBA loan eligibility on its website. In general terms, the primary requirements are that you are truly a “small” business, that you have a sound business purpose and that you’ve demonstrated the ability to repay your loan.

So, what exactly is a “small” business? According to the SBA, a small business is defined by either its annual revenue of the number of employees it has. Which yardstick is used depends on the industry involved. Businesses in most industries are considered “small” if they have $1 million or less in annual revenue. For certain larger industries, the business revenue limit is as high as $41.5 million. For industries categorized by the number of employees, businesses with anywhere from 100 to 1,500 employees may be considered “small.”

Additional requirements for SBA funding include the provision that you must have your own equity in your business and you must not be able to obtain financing elsewhere. These provisions can actually benefit businesses in the two-to-five-year window because they can usually show enough revenue to demonstrate an ability to pay but they may not qualify on their own for financing from major banks.

How Much Can I Get?

The upper limit for an SBA loan is $5.5 million. However, not many smaller businesses need anywhere near that amount for a short-term business loan — nor would many qualify for that amount. An important thing to remember is that an SBA loan is not a credit card; if you take out an SBA loan, you’ll have payment terms that you must stick with. If you take out too large of a loan, your payments may overwhelm your cash flow and become a huge hindrance on your business. Ultimately, you should only apply for a loan that will cover your short-term financing needs so that you don’t overextend yourself.

What Documents Do I Need?

The SBA loan guarantee helps both borrowers and lenders, but it means that the SBA itself is taking on additional risk. As a result, you may need to provide more documentation for an SBA loan than you might for some other types of loans. SBA loan documentation requirements include the following:

• Personal background information, including your criminal history, if applicable
• A business plan
• Business and personal tax returns
• Business and personal credit reports
• Business and personal bank statements
• Business licenses and permits, if required
• Company management biographies
• Business financial documents, including balance sheet and P/L reports
• Information about your collateral, if any
• A personal guarantee

As with most loans, the more documentation you can provide showing your ability to repay your loan, the more likely you are to be approved. Since an SBA loan effectively has two layers of approval — the SBA and the individual lender itself — your documentation will have to clear more hurdles. The more thorough you can be, the better.

What Are the Terms?

The SBA does approve loans of as long as 25 years, but that is for real estate loans only. For general business working capital, most SBA loans run from five to 10 years at most.

Established Companies With 5+ Years of Consistent Revenue

How to Get a Short-Term Loan for Established Companies

Established companies with at least five year of consistent revenue are the gold standard when it comes to borrowing. Lenders reward companies that show a solid ability to repay loans, and large companies with consistent revenue are likely to be able to live up to their credit obligations. If your company falls into this category, you can expect to find lots of financing options for your short-term finance needs.

One of the most flexible options for a high-quality borrower is a line of credit from a major bank. As a more established business, you may not need capital all the time, but it’s good to have immediate access to funding for sudden business needs, such as equipment replacement. With a credit line, you can avoid suffering even a single day without all of your machinery.

How Does It Work?

The best financing option for more established businesses is usually a large, name-brand bank. This is because well-capitalized, larger banks typically have numerous solutions for complex financing problems. Additionally, rates can be lower because established businesses have a more favorable credit profile, making banks want to compete for their business.

Although you’re more likely to get approved for a line of credit if you’re a successful business, the loan application process is still likely to be thorough. This means that you shouldn’t expect to be able to just click a few boxes online and immediately have access to a $1,000,000 credit line. For large lines of credit on favorable terms, you’re most likely going to have to visit a bank branch and deal with a loan officer directly.

The irony of this is that your funding process might end up taking longer than with less-qualified borrowers. Even though you’re a good credit risk, you’ll still have to demonstrate this to your potential lenders, and that can only be accomplished with paperwork. In the case of a long-standing, multi-line business, this means that you’ll have to provide lots of documentation so that your lenders fully understand your financial situation.

What Are the Rates?

Here’s the good news — as a well-established businesses, your rates will no doubt be lower than they would be for entrepreneurs with poor credit or startup businesses. For a line of credit, some large banks currently offer a rate of Prime + 1.75 percent for well-qualified customers. In some cases, you may be able to get an even lower rate. With a significant operating history and outstanding credit, you can play banks against one another and leverage your strength into the best possible rate available. Since you’ve earned your enviable credit record, use it to your advantage by shopping around to find the best rates before you commit to a particular bank.

Am I Eligible?

If you’re an established business, in a word, yes. You’re likely to be eligible for all types of loans, including credit lines. The only hiccup may come in the amount you want to borrow. If you need an extremely large line of credit, you should expect to provide more documentation or collateral. However, you’re still likely to be eligible unless there’s a black mark or two hiding in your credit report. If for some reason you’re turned down by one particular lender, be sure to ask why. But don’t get discouraged — you’re still likely to find many banks wanting to compete for your business.

How Much Can I Get?

As an established business, you’re likely to get any amount you ask for, within reason. However, the exact size of your line of credit will be based on some combination of your past loan history, the size of your revenues and the intended uses of your credit line. If your company pulls down millions of dollars per year in revenue, you can expect to get a maximum loan amount of $5 million or even more.

Remember that just because you can get a line that large doesn’t necessarily mean that you should. With an outsized credit line, you might be tempted to use that money for things you don’t necessarily need, such as additional equipment or a new warehouse, for example. With larger credit lines, you may need to offer up your entire company as collateral. If your new expansion — that you don’t need — doesn’t end up being financially viable, it may end up costing you your entire company. That’s not a position you want to be in, so be sure to keep your credit line requests in line with what you might actually need, and with what you can actually pay back.

What Documents Do I Need?

Applying for a line of credit is essentially the same as applying for a loan. Your best chance for getting approved with the lowest rates and the greatest flexibility is if you have a large, predictable revenue stream and a sparkling credit history. As your lender can’t simply take you at your word, you’ll have to provide documentation of this evidence. Although requirements vary from lender to lender, you should generally have some or all of the following documents ready to present:

• Business and personal tax returns
• Business and personal bank statements
• Profit & loss statements
• Business balance sheet

Don’t limit yourself just to these documents, however. The stronger the case you can make, the more likely you are to be approved for your credit line with the most favorable terms.

What Are the Terms?

Terms for credit lines are not generic and can vary quite a bit from lender to lender. The good thing about a line of credit is that you won’t have any loan repayment obligations until you actually draw from the line. However, be aware that some lenders may impose a maintenance fee, whether or not you draw from the credit line. Once you begin drawing down the credit line, you can usually pay it back as soon as your short-term financing needs are met. However, your repayment terms may be set at one year, three years, five years or even longer, so you may have the flexibility to pay back your financing over time. As with most types of loans, the faster you can repay your credit line, the less total interest you will pay.

FAQs

FAQs About Short-Term Business Loans

Since there are so many variations of short-term business loans, it’s important to know what your options are and how the whole process works. Here’s a look at some of the most common questions regarding short-term business loans, credit and corporate finance.

What Is A Short-Term Loan?

A short-term loan can be used to finance nearly any type of business need, from working capital to reduction of debt. Short-term loans are less risky for lenders because business and economic conditions can be unpredictable over the longer term. Borrowers benefit from the avoidance of long-term finance commitments.

How Long Is A Short-Term Business Loan?

A short-term business loan can run anywhere from a few months to a few years. There’s no official dividing line between a short-term and a long-term business loan, but generally speaking, loans of five years or more, and particularly 10 years or more, are considered long-term.

How Do Short-Term Loans Work?

As outlined above, short-term loans can come in many forms. From credit lines to collateralized equipment loans to working capital loans, borrowers can usually choose from a number of financing options that best suit their needs. Rates and terms vary based on a number of factors, including the type of loan, the credit profile and the operating history of the business, including its cash flow.

How Do I Choose A Short-Term Lender?

In a nutshell, the best short-term lender is the one that provides you with the best loan terms, the lowest interest rate and the most business support. Before you jump into the deep end of the pool, it pays to do a little planning and determine exactly what it is you’re looking for.

For example, do you anticipate needing advice and assistance throughout the entire financing process, or have you taken out hundreds of short-term loans already in the past? Is the financial profile of your company strong enough to qualify for loans with the major banks, or would you just be wasting your time and energy trying to get approved at a “name” bank? Are you willing to explore more flexible or creative financing options, or are you just looking for a straight loan? If you can answer these and other financial questions before you begin the process, you’ll be on your way to finding the most appropriate lender for your needs.

How Can I Get A Better Interest Rate On My Short-Term Business Loan?

For business loans, your company’s operating history and profitability play a big role in the rate you’ll get on your short-term business loan. Businesses with longer operating histories and proven revenue and profitability are in the catbird seat when it comes go snagging the best loan terms and rates, but businesses of all kinds can still obtain financing.

In addition to the financial health of your company, your personal and business credit histories can play a big role in your quest for short-term financing. The most widely used credit score is the FICO score, which is a mathematical representation of your ability to repay debt. Your FICO score is based on five major components:

Payment History: 35%
Amounts Owed: 30%
Length of Credit History: 15%
Credit Mix: 10%
New Credit: 10%

Some of these components are easier to improve over the short-term than others. For example, the amount of debt you owe is 30 percent of your personal credit score; if you have the cash, you can improve this big chunk of your score almost immediately by paying off all of your personal debt, or at least dramatically reducing your credit utilization. Other factors take more time. Your payment history, the single largest component of your FICO score, can only be improved by making on-time payments over a period of years. Similarly, the length of your credit history, by definition, can only be improved through the passage of time.

What Are Some Of The Risks Involved In Short-Term Financing?

All types of business loans involve some level of risk. When you borrow money, you’re usually making a promise to pay back money that you don’t yet have. If something goes wrong with your business plan, you may end up defaulting on your loan. In some cases, the loan itself may prove crippling, with the required monthly payments sapping your business cash flow to the point that you can’t properly run your business.

For this reason, it’s critical for all businesses to analyze their cash flow and the benefit they expect to receive from the loan to determine if borrowing money is the right course of action. Although a well planned-out debt strategy can pay huge dividends, taking out a loan at the wrong time could prove devastating. Thus, when taking out a loan, the quality of the lender can be an important factor. The right lender will walk you through the pros and cons of different types of financing options to help you arrive at the one that’s in your best interest.