Like Goldilocks and the Three Bears, finding funding for your business is a matter of determining the route that’s “just right” for you.
Short-term loans, which offer speedy approval times and less-stringent requirements than traditional bank loans, might be a good choice if you need cash fast for a big project, emergencies or surprise expenses.
Keep in mind that short-term loans also come with higher interest rates and shorter repayment periods, and many lenders implement weekly repayment schedules (compared to the usual monthly payments of traditional banks). All of these factors can result in debt if they aren’t handled well. Knowing what your options are can help you make an informed decision.
How do short-term business loans work?
Short-term loans are available to borrowers across the financial spectrum. Bad credit, good credit, small revenue, large revenue, etc. — you’ll be able to find a loan that fits your unique situation. But it helps to understand what you’re giving up in exchange, so here’s a quick rundown of what you can expect.
Here is a list of the benefits and the drawbacks to consider.
- Lenders may accept bad credit/have lower qualifying standards
- Funding comes quickly
- Tend to have higher qualifying standards
- Tend to have higher annual percentage rates (APRs)
Questions to ask yourself when shopping for a short-term business loan
There are many different types of short-term business loans. Answering the following questions might help you narrow down the list of eligible choices.
- Why do I need the money?
If the money is for emergency expenses, you want to find options that send the money quickly.
- How much money do I need?
The lenders on our best short-term business loans list offer as little as $5,000 and as much as $500,000, with OnDeck and Balboa Capital on the higher end of the spectrum.
- How long will it take me to pay back the loan?
Short-term loans are a quick fix, but they can also be a one-way street to accruing debt. Figuring out how long it will take you to pay back a loan helps keep you out of debt, especially if you have to make payments on a weekly basis.
Factors to consider
Short-term business loans do have less-restrictive requirements, but that doesn’t mean everyone qualifies. Many lenders have standards of consideration to determine whether they’ll finance your venture. Understanding these factors allows you to choose lenders wisely, helping you avoid the ones that are more likely to turn you down.
Lenders tend to consider:
- Your personal credit score. The good news is that a bad credit score doesn’t automatically put you out of the running for a short-term loan. Yes, credit score is a factor, but it might not carry as much weight with some lenders, especially if you’re stronger in other areas. Bad credit? Then think about choosing a loan from Fundbox, BlueVine or Kabbage.
- Your years in business. Most of the lenders on our list require at least one year in business. The exception is Blue Vine, which is a viable option if your business is new.
- Your revenue. This is how lenders decide whether you are able to pay back the loan. At $10,000, Balboa Capital has the lowest minimum revenue requirement on our list, and at $100,000, OnDeck has the highest.