A closer look at the best short-term business loans
Bluevine – Line of credit
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Minimum credit score: 625.
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Minimum time in business: 12 months.
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Minimum annual revenue: $120000.
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No bankruptcies in the past year.
Cash can be available within 12 to 24 hours.
Can be used to build business credit.
Low minimum credit score requirement.
Requires weekly payments.
Requires personal guarantee.
Not available in North Dakota, South Dakota or Nevada.
Rates can be high compared with traditional lenders.
Fundbox – Line of credit
Term length: 3 or 6 months.
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Minimum credit score: 600.
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Minimum time in business: 3 months.
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Minimum annual revenue: $30000.
Financing available within one business day after approval.
Simple application with minimal documentation required.
Startup-friendly — accepts borrowers with a minimum of six months in business.
Low minimum credit score requirement.
No prepayment penalties, account maintenance fees or inactivity fees.
Rates are high compared with traditional banks.
May require personal guarantee.
Weekly repayments required over a short term (maximum of 24 weeks).
Best for working capital needs
OnDeck – Online term loan
Term length: 18 or 24 months.
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Minimum credit score: 625.
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Minimum time in business: 12 months.
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Minimum annual revenue: $100000.
Cash can be available within the same business day.
Accepts borrowers with a minimum credit score of 625.
Streamlined application process with minimal documentation required.
Can be used to build business credit.
Not available in Nevada, North Dakota or South Dakota.
Requires frequent (daily or weekly) repayments.
Interest rates can be high compared with traditional lenders.
Requires business lien and personal guarantee.
Best for easy application process
Headway Capital – Line of credit
Term length: 12, 18 or 24 months.
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Minimum credit score: 625.
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Minimum time in business: 6 months.
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Minimum annual revenue: $50000.
Flexible qualification requirements.
Funds available by next business day after approval.
Most borrowers are subject to a 2% draw fee.
Not available in all U.S. states.
American Express Business Blueprint™
Best for business lines of credit
American Express® Business Line of Credit*
Term length: 6, 12, 18 or 24 months.
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Minimum FICO score of at least 660 at the time of application. The required FICO score may be higher based on your relationship with American Express, credit history, and other factors.
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Must have started your business at least a year ago.
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Average monthly revenue of at least $3,000.
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All businesses are unique and are subject to approval and review.
Streamlined application process with minimal paperwork.
Financing from $2,000 to $250,000 available.
Accepts borrowers with a minimum FICO score of at least 660 at the time of application.
Monthly repayment schedule (as opposed to daily or weekly).
No prepayment penalties, account maintenance fees or draw fees.
Must have online checking or PayPal account to verify cash flow.
Personal guarantee required.
Complex monthly fee structure makes it difficult to compare costs to other lenders.
*See disclosure at bottom of page.
Best for large loan amounts
Fora Financial – Online term loan
Term length: 4 – 18 months.
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Minimum credit score: 570.
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Minimum time in business: 6 months.
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Minimum annual revenue: $240000.
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No open bankruptcies or dismissed bankruptcies within the past year.
Cash can be available quickly.
Get a discount for prepaying.
Low minimum credit score requirement.
Charges a factor rate that makes it more difficult to compare costs with other lenders.
Can’t build business credit.
Longest loan term is 18 months.
Best for invoice factoring
AltLINE – Invoice Factoring
Term length: Invoices that are 90 days past due.
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All credit scores may be accepted (ranging from 300 to 850).
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No minimum time in business requirement.
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No minimum annual revenue requirement.
Capital available within 24 to 48 hours.
Manages payment collection from your customers.
Accepts startups and businesses with bad credit.
Fees can become expensive the longer it takes your customers to pay.
Difficult to compare factoring costs to other types of business loans.
Expansion Capital Group Merchant Cash Advance
Term length: ECG says its customers pay back the advance in 3 to 12 months on average.
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Minimum credit score: 500.
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Minimum time in business: 6 months.
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Minimum annual revenue: $100000.
Simple application with minimal documentation required.
Low minimum credit score requirement.
Daily or weekly repayment available.
Business assets required as collateral in some cases.
Factor rate and fee information not available on website.
What is a short-term business loan?
A short-term business loan is a small-business loan that typically has a shorter repayment period, ranging from three to 12 months — although some terms may go up to 24 months.
Short-term business loans can be good options for covering working capital needs and short-term expenses, paying for emergency expenses or taking advantage of an unexpected business opportunity.
How do short-term business loans work?
Short-term business loans are generally structured as lump sums of capital that you pay back over a set period of time, or term. These loans are usually repaid on a daily or weekly basis, meaning you’ll make larger, more frequent payments than you would with a long-term business loan.
Short-term loans are most often issued by online lenders, which offer fast funding and streamlined applications. Compared with bank or Small Business Administration lenders, short-term lenders typically have more flexible qualification requirements and may work with startups or businesses with bad credit.
Short-term business loan interest rates
Short-term business loans generally have higher interest rates than longer-term loans or more traditional financing options. Interest rates can range anywhere from 10% to 99% APR.
And although some short-term lenders use an annual percentage rate, others might offer a simple interest rate, or even a factor rate. You should always calculate these rates (and fees) into an APR, as this makes it easier to compare products and is the best way to understand how much the loan costs.
Types of short-term business loans
Here are some of the most common types of short-term business loans:
Business term loan
A business term loan provides a one-time infusion of capital into your business. It offers a lump sum of cash that you repay over a set period of time, with interest, to the lender. Term loans can be used for a variety of purposes such as paying short-term expenses, investing in specific projects or making large purchases.
Business line of credit
A business line of credit allows you to access capital as it’s needed for your business. After a lender approves you for a set limit, you have the flexibility to determine how much money to withdraw and when. You’ll make regular payments and pay interest on the funds you draw. Lines of credit can be a good option for working capital, cash flow gaps, seasonal slows and emergency funding.
Invoice factoring
For business-to-business companies, invoice factoring can be an option for short-term funding. Invoice factoring involves selling unpaid invoices to a factoring company at a discount in exchange for a cash advance. The factoring company then assumes responsibility for collecting payment from your customers. It can be a good option if your business has a large amount of cash tied up in unpaid invoices.
Merchant cash advance
A merchant cash advance (MCA) can be an option for a business that has substantial debit and credit card sales. MCA companies give you an upfront sum of capital that you repay using a percentage of your debit and credit card sales, plus a fee. MCAs can have extremely high APRs, however, so they should be used as a last resort option.
Pros and cons of short-term business loans
Pros
Short-term business loans typically don’t have restrictions on the ways you can use them. Because these loans have short repayment terms and fund quickly, however, they’re often best suited for immediate or unexpected expenses.
If you need a fast business loan, some short-term lenders can provide financing in as little as 24 hours. And compared with bank lenders, which may take weeks to process your application, short-term business loans are often funded within a matter of days.
✅ Streamlined applications.
Most short-term business loans are issued by online lenders, which typically offer streamlined applications. You can usually complete and submit an online application in a matter of minutes, with minimal documentation required.
✅ Flexible eligibility criteria.
Short-term lenders generally have more lenient qualification requirements compared with more traditional business lenders. Startups or businesses with bad credit may be able to qualify for a short-term business loan.
Cons
Short-term business loans typically have higher interest rates and fees compared with long-term loans. Business bank loans, for example, have annual percentage rates that range from 6.42% to 12.41% whereas short-term loans have rates that range anywhere from 10% to 99%.
Short-term lenders often require payments daily or weekly as opposed to monthly. This means you’re making larger, more frequent payments over a shorter term. For some businesses, this payment schedule can impede cash flow and can be difficult to manage.
The speed and ease of qualifying for some short-term business loans can be problematic if you can’t keep up with your payments. When these daily or weekly payments cut into your cash flow, you may feel the need to take out another loan or refinance in order to repay. With high interest rates and frequent repayments, this cycle of debt can be difficult to break.
When to consider a short-term business loan
Here are situations when a short-term business loan may be the right fit for your needs:
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Working capital needs. Short-term business loans can provide quick access to funds that can be used to cover day-to-day business operations and expenses such as rent, supplies, inventory and payroll. These loans may be a good option for businesses that can’t qualify for more traditional financing.
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Unexpected business opportunity. If you receive an unexpected business opportunity, a short-term loan may be a good option to help grow revenue or even cut costs. It can provide the funds needed to take on a new customer and hire additional staff or take advantage of an inventory discount for buying in bulk, for example.
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Seasonal cash flow gaps. Seasonal businesses often experience interruptions in cash flow during the off-season. A short-term business loan can provide quick access to the funds you need to keep operations running when sales fall off or meet the costs of preparing for the upcoming season.
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Emergency expenses. If you need to replace a crucial piece of broken equipment, a short-term loan may be a good option. These loans can help you cover emergency expenses as a result of a natural disaster, accident or economic difficulty.
How to get a short-term business loan
You can follow these steps to get a short-term business loan:
1. Assess your financing needs
You’ll want to think about how much funding you need and what you want to use it for. You’ll also want to consider what type of business loan is right for you.
Since short-term business loans have more frequent payments and higher interest rates, you’ll want to make sure your business can afford any debt you take on.
2. Evaluate your qualifications
Although short-term lenders often have flexible business loan requirements, you’ll want to know where your company stands before applying. Know your time in business and annual revenue, and check your credit score — as many lenders use these three criteria to evaluate your loan application.
3. Find and compare lenders
Once you have an understanding of your funding needs and qualifications, you can explore lenders to find the best choice for your business. As you compare different options, you’ll want to consider factors such as interest rates, additional fees, repayment terms, funding speed and lender reputation.
4. Submit your application
Short-term lenders typically offer a streamlined, online application that can be completed fairly quickly with minimal documentation. Although business loan application requirements vary by lender, you may be asked to provide business and personal tax returns and bank statements as well as business financial documents, such as a profit and loss statement
Short-term lenders don’t usually require physical collateral to secure your loan, but you’ll likely have to sign a personal guarantee. Your lender may also take out a general lien on your business assets.
5. Close your loan
Before you sign a business loan agreement, you should compare all loan offers you receive to make sure you’re getting the best deal for your business. You’ll also want to thoroughly review the agreement and make sure you understand the repayment terms, interest rate and additional fees. If you have any questions, you should ask the lender for clarification before signing.
When to consider alternatives to short-term business loans
In some cases, a short-term loan may not be your best option. In these instances, you may consider an alternative:
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If this is your situation: |
Consider this alternative: |
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Your loan payment amount is too large |
If the monthly payment amount on your short-term loan is outside your budget, a business loan with a longer repayment period may offer a lower monthly payment. Long-term business loans can have terms up to 10 years, and even 25 years, in some cases. Depending on the rate, however, you may pay more in interest over the life of the loan. |
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Frequent payments will disrupt your cash flow |
Short-term lenders often require daily or weekly payments. A business credit card, however, operates similar to a business line of credit and typically requires monthly payments. But carrying a balance instead of paying off the card in full each month can get expensive. |
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Taking on additional debt isn’t possible |
If your business isn’t generating enough revenue to take on another debt payment, business grants may be an option. Business grants don’t require repayment, but competition for them is strong. |
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You can’t meet lender requirements |
If you don’t meet lender requirements for a loan because you have a low credit score or haven’t been in business long, consider using crowdfunding to create a fundraising campaign for your business. It can be a low-cost way to raise capital and also an opportunity to build an enthusiastic client base — without taking on additional debt. |
How long is a short-term business loan?
Short-term business loans typically have repayment terms of 12 months or less. Some lenders may offer slightly longer terms — up to 18 or even 24 months.
Are there short-term loans for startup businesses?
Short-term loans are available for startup businesses. Some lenders offer short-term business loans for startups with at least six months in business, whereas others require at least 12 months in operation.
Can I get a short-term business loan with no credit check?
Some merchant cash advance and invoice factoring companies offer short-term financing without a credit check. These companies prioritize other criteria, such as your debit and credit card sales, value of your invoices and/or customer creditworthiness to evaluate your application. Keep in mind, however, that these products may be more expensive than traditional business loan options.
How long is a short-term business loan?
Short-term business loans typically have repayment terms of 12 months or less. Some lenders may offer slightly longer terms — up to 18 or even 24 months.
Are there short-term loans for startup businesses?
Short-term loans are available for
startup businesses
. Some lenders offer short-term business loans for startups with at least six months in business, whereas others require at least 12 months in operation.
Can I get a short-term business loan with no credit check?
Some merchant cash advance and invoice factoring companies offer short-term financing without a credit check. These companies prioritize other criteria, such as your debit and credit card sales, value of your invoices and/or customer creditworthiness to evaluate your application. Keep in mind, however, that these products may be more expensive than traditional business loan options.
» MORE:
Everything you need to know about business loans with no credit check
* American Express® Business Line of Credit* offers two loan types, installment loans and single repayment loans for eligible borrowers. All loan term types, loan term lengths, and pricing are subject to eligibility requirements, application, and final approval. This content contains general information about the American Express® Business Line of Credit* installment loan type only.
Methodology
NerdWallet’s review process evaluates and rates small-business loan products from traditional banks and online lenders. We collect over 30 data points on each lender using company websites and public documents. We may also go through a lender’s initial application flow and reach out to company representatives. NerdWallet writers and editors conduct a full fact check and update annually, but also make updates throughout the year as necessary.
To come up with our list of the best short-term business loans, we selected lenders with term lengths of 24 months or less and strong NerdWallet star ratings.
Our star ratings award points to lenders that offer small-business friendly features, including:
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Transparency of rates and terms.
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Flexible payment options.
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Accessible customer service.
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Reporting of payments to business credit bureaus.
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Responsible lending practices.
We weigh these factors based on our assessment of which are the most important to small-business owners and how meaningfully they impact borrowers’ experiences.
Read the full article here
