Short Term Business Loan

No matter what type of short term lender you choose, the most important thing to consider is your APR, because that directly affects how much your loan payments add up to.

You most likely won’t get a prime rate with a short term loan but you can still compare offers to get the best deal possible for your business financing.

And remember that interest rate alone doesn’t reflect the cost of the loan.

Also consider origination fees and any other applicable charges to your loan (all of which should be reflected in the APR.)

It’s also smart to check on late payment penalties and refinancing options just in case you end up needing them later.

First, it’s important to remember that short term lending is meant to be just that — Working capital to tide your business over a short period of time. The funds are not meant to be used as a long-time investment. Loans typically range between $5,000 and $300,000 but the good news is that the lending requirements are usually more relaxed so it’s easier to get approved. Once you have a proven track record of successfully repaying a short term loan, you may also increase your chances of qualifying for a larger long term loan in the future.

There are many situations where a short term business loan could be right for your business. Perhaps you have a large order to fill from a customer, but you need cash upfront to pay your supplier. Without a short term bank loan, you might have to pass on the deal if you don’t have the working capital available or don’t have a large enough line of credit on your business credit card. But the right small business loan can open you up to new opportunities for growth and expansion.

Another example of when a short loan may be right for your business is to cover an emergency expense. Maybe one of the coolers went out at your restaurant, or your delivery truck broke down.

You might not need long term financing for $500,000, but instead just need a small working capital business loan to take care of the emergency. You repay the loan in a year, and can move on to other things. In this situation, a short term loan might be worth considering because the approval and funding timeline can be faster than other loans.

When you need a business loan now, short term financing is certainly something to consider.

One pitfall is the expense of short term loan rates. Because they last for smaller periods of time and the underwriting standards are more relaxed, lenders may charge higher working capital loan rates to compensate for the added risk. Daily payments might be higher and your business financials might not need to be as strong as when applying for a multi-year loan. But you need to make sure your cash flow allows for frequent payments for the entirety of the loan, otherwise you run the risk of racking up expensive late fees.

Another issue to be aware of before getting any short term business financing is the potential of a debt trap. If you’re not able to keep up with your loan payments, you might be forced to continually refinance the loan into a longer repayment period. Each time you do this, you’ll accumulate more interest and fees, and you’ll keep owing more and more money. This is not going to contribute to the success of your business, so only take out the loan if you feel confident you can repay it within the original timeframe. Remember to consider the short term loan interest rate, loan amount, and repayment term when determining whether taking on any short term debt is the right financial decision for your company.