The best short-term business loans when you need financing

There’s a variety of reasons why a business may need short-term financing. From bridging seasonal cash flow gaps to purchasing new equipment — quick capital is essential in keeping things afloat. Learn about the best short-term business loans in this article.

The need for short-term financing

The rise in short-term financing means that more and more businesses are getting the funding they need to take their company to the next level. The reality is, the cost of running a successful business is substantial – payroll, marketing expenses, training, technology, equipment, the list goes on. However, it’s not always feasible to bootstrap your way through major expenses.

Short-term, asset-based financing can be highly beneficial in fronting start-up costs or ensuring a company remains operationally excellent even when life throws an unexpected curveball. The reality is, many small businesses will experience the need to obtain funds fast, whether it’s due to a lull in revenue, emergency repairs, or any other unexpected costs, short-term business loans can provide the working capital you need to get through any temporary financial bind.

What is a short-term loan?

As the name implies, short-term business loans are designed to provide small businesses with the financing solution they need with a quick repayment turn-around. The actual term of the loan ranges from 3-18 months in length with repayment installments paid on a daily or weekly basis.

Short-term business loans are also typically a lot easier to acquire than other small business financing options, which often require a higher credit score and a more substantive business history. Many short-term business loans require little documentation to apply, are typically easy to qualify for, and boast rather fast processing times. This means that you don’t have to wait long to get the working capital your business needs when it matters most.

The wide variety of financing

When most people think of a small business loan, they think of a traditional five- or ten-year team loan. However, many options exist for working capital outside of traditional long-term loans you may consider based on your small business’ needs, such as:

  • Term loan: A term loan allows you the ability to secure working capital upfront and then pay it off weekly, monthly, or annually depending upon the lifespan of the loan and the funder. Typically, a term loan has lower rates than other financing options, but this may vary depending upon whether you choose a short-term or long-term loan.
  • Line of credit: A line of credit is a flexible lending option that provides your company with access to capital on a need-to basis. Once your company has been approved for a set amount, you have the ability to draw from it whenever it’s necessary. This option provides you with the utmost flexibility when it comes to financing. Whether it’s helping with payroll, or upscaling your company’s office spaces, obtaining a line of credit may be the best option for you.
  • Business credit card: Similar to a personal credit card, a business credit card provides small businesses with the ability to make purchases and payments using a line of credit that’s easily accessed from a credit card.

When should a business consider a short-term loan?

Before taking out a business loan, you should consider the loan’s purpose. Knowing what you’ll be using the loan for will help you dictate the loan amount and what terms make the most sense for your business (long-term or short-term). If you’re looking to invest in long-term growth that may require a substantial amount of capital, long-term loans are suitable for companies looking to reach the next phase of growth. Short-term business loans will increase your company’s existing capital for more immediate needs.

Although there are many reasons why a small business might consider a short-term business loan, here a few examples of a what short-term financing can be used for:

  1. Project start-up costs: There may be times when kickstarting new project requires upfront costs that exceed the initial project budget. Ensuring the project is successful means making sure the project is done right. Acquiring a short-term business loan will give you the ability to cover the necessary expenses without having to repay the loan over the course of several years.
  2. Seasonal cash flow gap: Many seasonal businesses sometimes borrow to get through the slower business months. Keeping the doors open requires sufficient cash-flow a short-term business loan can provide.
  3. Payroll: Retaining talent is a key competitive differentiator. A company’s ability to hold its talent profoundly impacts the company’s ability to be operationally excellent without having the hassle of recruiting, hiring, and training new talent. A short-term business loan could be a good solution for ensuring payroll is covered even when you experience a lull in business.
  4. Cover the costs of emergency repairs of critical equipment: It’s not uncommon that machinery fails or needs to be serviced. When equipment is necessary to the daily operation of your business, you can’t afford to wait. A short-term small business loan can help get operations moving again without having a long-term repayment obligation.

Is a short-term loan more convenient than a long-term business loan?

Ultimately, deciding between a short-term or long-term business loan comes down to the loan purpose. However, if you need funds fast, you may consider the overall accessibility and convenience as one of your deciding factors.

Short-term financing provides the ease of a simple application and a relatively quick turnaround time. After being approved, you may even have the money in your account in as little as 24 hours. Typically, the higher approval ratings and access to working capital when you need it most makes for a convenient solution to any financially tight situation.

Once your company starts to gain scale and become more established, you may consider a long-term business loan. Long-term financing enables businesses to align its investments with long-term strategic goals, which provides more time to realize a return on investment. Although long-term business loans offer larger loan amounts and typically offer lower rates, it’s important to keep in mind that long-term financing applications and approvals often take time and require a higher qualification standard than short-term business loans. Therefore, in terms of accessibility and convenience, short-term business financing is the most advantageous loan option, especially when the loan is being used to support daily operational needs.

How to apply for short-term business loans

Once you’ve identified the best loan for your business, it’s time to apply. The good news is, applying for a short-term business loan is simple and can be achieved online from anywhere on your device. While filling out the application, you may be prompted to provide some general information about your business and its financial history so make sure you have the required documentation on hand. Doing so will make the process as seamless as possible. Before submitting the business loan application, make sure to review and double check that everything the funder asked for is in the appropriate order and format. This will help alleviate any unnecessary back and forth that may prolong the approval process. Once submitted, your application will be reviewed by the funder. In the event that your fudner requires additional information, a business advisor will reach out to you for further explanation. If you’ve been approved, the working capital will be deposited into the business bank accept, allowing you to pursue your next business goal.

Gather the required documentation

When applying for a short-term business loan, you should expect to be asked to provide the following; however, the required documents may vary by funder:

  • Business plan: Most loan applications require a sound business plan to be submitted with the loan application. Funders need to see what you plan to put your equity towards and what you plan to gain from your investment.
  • Financial statements: Many loan programs require up to one year of business bank statements to be submitted as part of the loan package which includes a detailed report of revenue and expenditures.
  • A business banking account: Having a separate business bank account can make your accounting easier to manage. This also provides you with the opportunity to present clean financial records that are indicative to your business financial records.
  • 3 months of bank statements: Your funder will closely review bank statements to gain a better understanding of your business history.
  • Business license: Funders need to ensure you are licensed in your state to operate your business lawfully.
  • Legal documents: Legal documents required by your funder may be in the form of:
    • Articles of incorporation
    • Copies of contracts you might have with third parties
    • Franchise agreements
    • Commercial leases
  • Tax returns: Your company’s income tax returns can illustrate business performance which is an integral part of the loan application process.
  • Collateral, if required: Collateral requirements vary greatly. However, it is a good idea to prepare a collateral document that describes the cost/value of business property that may be used to secure the loan.

Submit your application

Once you’ve gathered the proper documentation, it’s time to submit your application. The Loan Solutions OU underwriting team will then review the business financing application and, if approved, the loan proceeds will be deposited into the business bank account on file.

Conclusion

A short-term business loan offers the utmost flexibility when it comes to small business financing. If you’d like to learn more about term financing options or would like to speak to a business advisor, call one of our representatives at Loan Solutions OU today: (877)-252-0827.