Short-term Business Loans

Short-term loans provide businesses with quick working capital. You are expected to repay the loan within a short period usually three to 36 months. This loan just like other loans will include fees, and interest rates. You may need a short term loan to fund a project that needs huge funding. Sometimes, you may want to pursue projects that will bring returns within the next 2 to 3 months. However, your funds are limited, you can rely on short-term loans to fund your business.

In instances where your business has seasonal sales, you can get a short-term revenue to bring the gap between the two periods. This will help ensure constant cash flow. You can also take loans to take advantage of a discount purchase. Especially, inventories that have quick turnaround time. Short-term loans can also help you to deal with emergencies such as repair works.

Types of Short-term loans

  1. Short-term business loans
    This loan option is usually offered by online lenders. The interest rate on the loan varies but it depends on your credit score. The APR ranges from 14% to 99%. the loan period ranges from three to eighteen months. Borrowers can access between $2,500 to $250,000. One good thing about this loan option is that the approval rate is fast. You can get approved within 48 hours. You will have the cash in your account in no time.
  2. Merchant Cash advance
    The merchant cash advance option allows the fund provider to grant you a lump sum for a short while. With this loan, the cost is expressed in factor rates instead percentages. The factor rate ranges from 1.14 to 1.18. The borrower is expected to make daily payments and you can access between $2500 and $250,000. You will receive the funds within 7 days after applying for the cash advance.
  3. Invoice Financing
    This loan option provides funds to pay 50% to 90% of the total outstanding invoice. The cost of this loan option is 3% and a percentage per week of the outstanding invoices. The mode of payment is quite different. When a customer pays an invoice, the loan provider will take 50% to 90% of the invoice including factor fee. You can access the funds within 24 hours after completing the application.

Pros of Short-term loans

  1. There is limited paperwork when you are applying for such loans.
  2. You can qualify even if you have bad credit.
  3. This loan type is suitable for a wide range of business purposes.
  4. Funding is also fast.

Cons of short-term loans

  1. The annual costs of these loans are higher than that of long term loans.
  2. If you have a business that does not have steady income, daily and weekly payments will be difficult sometimes.

Eligibility Requirements

Although requirements may vary from lender to the other, there are some requirements that run through. Hence, you have a high possibility of qualifying for a business loan if you meet these requirements.

  1. If your annual revenue is over $150,000. Most borrowers who earn at least $150,000 in a year get access to short term loans.
  2. You will also need a minimum credit score of 600 to qualify for these loans.
  3. In most cases, the lenders expect you to be in business for at least 2 years.
  4. You may also be required to submit documents including tax returns, proof of ownership, driver’s license, credit score, voided check, and bank statements.

How to Apply

The first thing to do during the application process is to look for a lender that meets your demands. This step is important because there are several lenders online. Most of these lenders will claim that they are offering exactly what you are looking for but that is not always true. You will need to narrow down your search if you want a loan package that will work for you. the first step in narrowing your search is to look for lenders that specialize in offering loans to the type of business you do. Some lenders specialize in giving loans to a particular industry, others grant loans to companies of certain sizes only.

You should also consider lenders you have had prior relationships with. It is easier to build on existing relationships than to build new ones. You should also look at the funding period when choosing a lender. Choose a lender who can give you the funds at a time that you need it. it is risky for you to put down a collateral when you are taking business loans. You risk losing your property if you are unable to pay the loan on time. In this respect, you should look for lenders that are willing to offer unsecured loans at good rates. You should also compare rates before choosing a lender.

You should, however, be cautious of the number of application forms you fill out. If the lender makes a hard pull, it affects your credit score and numerous hard pulls has significant effects on your credit.

Short-term loans are applied online. You can apply for this loan from home or office. You can complete the process in a few minutes. Before you begin the process, make sure your documents are intact. The approval rate is also very fast. In most cases, the loan is paid to your bank account after the process is completed.

Aside interest rates, you will also be required to pay processing fees and other fees on your loan. Once you have the funds in your account, you should start planning for the repayment. One fee you must avoid is the late fees. These fees are charged when you do not repay your loan on time.

Short-term business loans should be used for projects or payments that produce results in a short period. It is advisable to avoid using this loan as a long-term financial solution. You can be trapped in a debt cycle if you use this loan for long term purposes. Or for projects that will be bring returns within a short period. You should consider long-term loans for such purposes.

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