How to get a short-term business loan for small business

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Short-term loans are often used by small business owners for emergency cash flow needs

Consider repayment terms, borrowing costs and your unique business requirements when choosing the best short-term business loan

How to get a short-term business loan for small business
How to get a short-term business loan for small business

Short-term business loans are loans with shorter repayment terms — from a few weeks to 24 months. Funding usually happens faster than with long-term loans, and lenders often have a simplified application process. Many small business owners use short-term loans to meet emergency cash flow needs, but one downfall is that interest may be higher than longer-term loans, especially if the lender uses factor rates.

Online lenders are a common choice for short-term business loans, but traditional banks and credit unions also offer short-term business financing. Although the terms and funding differ from other small business loans, the process to apply and get approved is similar.

How to get a short-term business loan in 5 steps

If you have urgent cash needs for your business, a short-term loan may be the right funding choice. Here’s how to get a short-term business loan in five steps.

1. Determine how much funding you need

Short-term business loans can help cover upfront costs for a startup, emergency expenses or seasonal income gaps. The first step to getting a short-term business loan is determining how much funding you need.

Because short-term business loans tend to have much higher rates and more fees, determine what you plan to use the funds for and the minimum amount you’ll need. To make sure you can repay the borrowed funds, use a business loan calculator to estimate your monthly payments with different loan sizes and terms.

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2. Decide what kind of loan you need

You might think of a short-term business loan as just one option, but there are several business loan types to choose from. Now that you know how much funding you need, consider each option, including repayment terms and borrowing costs, to decide what kind of loan is best for your needs.

For example, invoice factoring or invoice financing may be a good fit for businesses that invoice other businesses instead of working directly with consumers, especially if you can’t qualify for traditional loans. Merchant cash advances may be a more costly option but can be ideal for businesses that primarily make large volumes of credit card sales.

There are also secured and unsecured short-term business loans. Secured business loans use collateral, like real estate, inventory or business property, to minimize the lender’s risk, providing better terms for the applicant. Unsecured loans don’t have collateral requirements but are harder to qualify for.

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