Where to Find the Best Short-Term Business Loans in 2017

This guide will help you decide whether a short-term business loan is the right move for your company and how to get one that meets your needs.

You’ll learn:

Part I: Explaining Short-Term Business Loans

Whether you’re running your own business or you have a small team of employees, at the end of the day everything falls on your shoulders as a business owner. Every opportunity is yours to take. Every problem is yours to solve.

And the truth is that both opportunities and problems often require cash. Cash to buy more inventory. Cash to market your services. Cash to get you through a rough patch.

But sometimes the cash isn’t there when you need it. And that’s where a short-term business loan can be helpful.

Short-term business loans give you access to money quickly so that you can address your immediate need and pay the loan back with the revenue you earn over the next several months.

They essentially act as a bridge, allowing you to get from Point A to Point B even if you don’t have the cash on hand to do it yourself.

Recommended short-term business loan options

You have a lot of lenders to choose from when looking for a short-term business loan, and you should expect to spend some time sorting through them to find the best option for your personal needs.

Here are a few good options to get you started, and you can refer to the following guide for even more: 17 Options for Small Business Loans.


OnDeck

 

  • Website: https://www.ondeck.com/short-term-small-business-loan
  • Max loan amount = $500,000
  • Loan terms from 3 to 36 months
  • Annual interest rates start at 9.99%, with an average annual rate of 49.7%
  • 2.5 percent to 4 percent origination fee
  • Eligibility requirements
    • 1+ years in business. The average customer has been in business for 7 years.
    • $100,000+ annual gross revenue. The typical customer has $450,000+ annual gross revenue.
    • 500+ credit score. The majority of customers are at 660+.


RapidAdvance

  • Website: http://www.rapidadvance.com/sba-bridge-loan
  • Max loan amount = $1,000,000
  • Monthly fees from 10 percent to 50 percent
  • Eligibility requirements
    • 2+ years in business
    • $5,000+ monthly gross revenue
    • 600+ credit score


National Funding

 

  • Website: https://www.nationalfunding.com/solutions/short-term-business-loans
  • Max loan amount = $500,000
  • Loan terms from 6 to 12 months
  • Fees from 24 percent to 80 percent
  • Eligibility requirements
    • 1+ years in business
    • $100,000+ annual gross revenue
    • No defined minimum credit score, but representatives indicated that 465-480 was the lowest they have previously seen qualified
    • 3 months’ of bank statements


Kabbage

Compare small business loans online

These sites are great tools for small business owners looking to compare offers from several small business lenders all at once. They typically ask for some key info about your business and the type of loan you are looking for, then match you with lenders that fit your needs.


Fundera

*As Fundera notes on its site, these are general qualifications. In a study of the borrowers who shopped on Fundera and successfully secured business loans, the site found they typically had a 600 credit score, annual revenue of $150,000, and were in business at least two years.


LendingTree

Website: https://www.lendingtree.com/business/small/

      • Eligibility requirements:
      • 1+ years in business
      • Credit score, revenue and other factors will be evaluated independently by each lender

    Disclosure: LendingTree.com is the parent company of MagnifyMoney.

SBA Lender Match

Website: https://www.sba.gov/lendermatch

4 smart ways to use a short-term business loan

Source: iStock

Taking on debt should almost never be your first option, but there are a few situations in which a short-term business loan can make a lot of sense.

1. Buying More Inventory

Maybe you’re just starting out and you need to buy the inventory you’ll eventually sell. Or maybe you’re gearing up for a heavier sales period than usual.

Whatever the case, there are times where you need to buy more inventory and you don’t have the cash on hand to cover it. And as long as the expected revenue exceeds the amount you’re borrowing, plus interest, paying the loan off quickly shouldn’t be an issue.

2. Opening a new location

Opening a new store or a new office has the potential to grow your business by leaps and bounds. More locations means more opportunities to serve more people.

But it can cost a lot of money to open a new location. A loan can help you get it up and running, with the revenue produced by that new location being used to pay off the loan.

3. Hiring employees for the busy season

A lot of businesses need extra workers at certain points in the year. Think vacation destination restaurants in the summer or retail stores during the holidays.

A short-term business loan could help you hire those extra employees ahead of time, ensuring that you have all the help you need to take full advantage of the busy season.

4. Getting through a financial emergency

Unfortunately, business isn’t always booming. Sometimes you hit a rough patch, business is slow, and there isn’t enough revenue to cover all your expenses.

Taking on debt to address financial difficulties is risky. A loan is an additional financial burden that could make your problems worse.

But if you have good reason to expect a turnaround in the near future, a short-term loan could help you keep the lights on in the meantime.

Pros of Short-Term Business Loans

While a short-term business loan isn’t always the right solution, these loans do have a few advantages over other forms of financing:

  • Fast approval process – Certain online lenders will issue approval in just a few hours and deposit the money in your account in as little as 24 hours. If you need money fast, that could be the way to go.
  • Build your business credit – Short-term business loans are often available to businesses with little to no credit history. This both allows you to borrow money when other avenues are unavailable to you and to build a credit history that makes it easier to qualify for bigger loans down the line.
  • Take advantage of business opportunities – Because of the fast approval process and less stringent credit requirements, short-term business loans often allow you to take advantage of business opportunities that otherwise wouldn’t be available to you. This can sometimes make the difference between a business that fails and one that succeeds.
  • Match your borrowing needs – It doesn’t make sense to take out a 10-year loan if you just need help buying inventory you’ll sell in the next few months. Getting a short-term loan allows you to get the money you need and pay it back quickly so that it isn’t a burden any longer than it needs to be.

Cons of Short-Term Business Loans

While short-term business loans can be helpful in the right situations, they have a few characteristics that should make you think twice before taking them out:

  • Typically smaller loan amounts – Many short-term business loans are capped at $500,000 or less. If you’re in need of more than that, you may need to find a different form of financing.
  • Higher APR – Short-term loans typically have higher interest rates than longer term loans that come with longer application processes and stricter eligibility requirements. You’re paying the interest over a shorter time period, but it can still be an expensive way to access money.
  • Could be subject to daily/weekly payments – Shorter loans also come with more frequent payments. Many lenders require daily repayment, and even weekly repayment could be difficult if you won’t get the revenue right away.
  • Can lead to spending beyond your means – Due to the ease and speed with which you can obtain these loans, there’s a risk of developing a dependency upon debt that leads you to spending more than your business can truly afford. While debt can be helpful on occasion, it is not a sustainable way to run a business.

Short-term loan vs. line of credit

A line of credit is a popular alternative to taking out a short-term business loan, and there are situations in which it can be the better option.

A line of credit is an amount of money that a lender makes available to you to borrow. But unlike a loan, you don’t receive the entire amount right away. Instead, you are allowed to borrow money as you need it, up to the maximum amount, and you only pay interest on the amount you have actually borrowed.

According to Cathy Derus, CPA, a financial planner and the founder of Brightwater Financial in Chicago, the main advantage of a line of credit is the flexibility it provides. You borrow only what you need when you need it, allowing you to more precisely match your debt with your expenses.

The flip side, Derus says, is that a line of credit typically comes with a higher interest rate. If you are fairly certain of the amount of money you need, a short-term loan often allows you to borrow it at a lower cost.

Interest rates always depend on the lender you use and the specifics of the situation, so these aren’t hard and fast rules. But generally you can approach this decision like this:

  • If you’re unsure of the amount of money you need, or if you don’t need it all at once, the flexibility a line of credit provides may be worth the extra cost.
  • If you have a specific amount of money you need right now, a short-term loan may be the cheaper option.

PART II: Qualifying for a Short-Term Business Loan

Source: iStock

What it takes to qualify for a short-term business loan

Every lender has a different set of standards and will evaluate your business a little differently. But Derus says that there are three main factors that almost all lenders consider when deciding whether to offer you a loan, and on what terms:

  1. Time in business – Businesses that have been around for a longer period of time are less likely to fail and are therefore considered less risky. Older businesses are therefore generally able to qualify for larger loans at preferable rates.
  2. Credit history – Just like applying for a personal loan, lenders prefer long credit histories that show consistent, on-time payments. One of the benefits of short-term business loans is that you can often qualify without an extensive business credit history, but in that situation your personal credit will be scrutinized more closely and you may be held personally liable for the loan if the business can’t pay it back.
  3. Financial health of your business – The lender will look at bank statements and financial reports like profit and loss statements and your balance sheet to make sure that your company has the financial resources to pay back the loan. Most lenders specify a minimum gross revenue in order to qualify.

Lenders may also look at things like the industry you’re in, the amount of equity you personally have in the company, other debts or liens against the company, and even your business plan so they can feel confident you’ll use the money well.

Questions to ask before shopping for a short-term loan

Given those criteria, how can you put yourself in the best position possible to qualify for a favorable short-term business loan? Here a few questions you can ask yourself:

  • How long have you owned your business? The longer you’ve been in business, the more likely it is that you’ll be able to borrow the money you need at a reasonable cost.
  • Do you have organized and consistent financial reports? You’ll need to provide these to the lender during the application process, so you’ll want to make sure you have them ready and that they are accurate.
  • Do you have the revenue needed to pay back the loan? In addition to the lender’s evaluation of your revenue, you need to be confident yourself that you’ll have the money to pay back the loan quickly.
  • What is your company’s credit history? A strong and extensive credit history will make it easier to qualify for a loan. Minimal credit history means your personal credit will be more important. A negative credit history will make it harder to qualify.
  • What is your personal credit history? Even with minimal business credit history, you can often qualify for a short-term business loan if your personal credit history is strong.
  • Do you have other loans or obligations? Your credit utilization is the amount of debt you currently have compared to the amount of credit you have available to you, and a low credit utilization rate is one of the big keys to a good credit score. Loans and other financial obligations can not only hurt your credit score, but they can make you more risky in the lender’s eyes because you have multiple debts to pay back.
  • Do you have a relationship with any particular bank? A strong and extensive history with a particular bank might make it easier to borrow money on preferable terms.
  • Do you qualify for any government loans? The government offers lending programs to companies in specific situations. If you qualify, you may be able to borrow on more favorable terms than you would through private lenders.

How to determine what type of business loan you need

Finding the right short-term business loan for your needs requires some work on your part. Your job is first to understand your need, and second to find the loan that matches that need at the lowest cost possible.

Here’s a step-by-step process you can follow:

  1. Figure out how much money you need – You don’t want to borrow more than you need, but you also don’t want to come up short. In addition, the amount of money you need will affect the lender you choose, as different lenders have different maximum loan amounts.
  2. Determine when you need the money – Do you need it right away or can you afford to wait? The more time you have, the more options you’ll have available to you, as some of the loans with better terms require a longer application process.
  3. Determine when you’ll be able to pay back the loan – When will you have the revenue to pay back the loan? This will help determine how long your loan term needs to be.
  4. Can you afford to make daily or weekly payments? Short-term loans often require daily or weekly payments, so you need to make sure you’ll be able to make them.
  5. Check your business credit history – Business credit scores range from 0 to 100, with the SBA noting that 75 or above is the ideal range. You can research your business’s credit history through Experian and Dun & Bradstreet.
  6. Check your personal credit history – You can pull your credit history for free once per year from annualcreditreport.com. And you can use this guide to get a sense for your credit score. A stronger credit history and higher credit score will lead to better loans.
  7. Prepare your financial reports – You should have well-organized bank statements, a profit and loss statement, and a balance sheet ready to provide during the application process. If you haven’t been keeping your books up to date, you might want to obtain the help of a CPA to make sure everything is done correctly.
  8. Evaluate alternatives to a short-term loan – There are alternatives to taking out a short-term loan, such as taking out a line of credit or utilizing a small business credit card. Make sure that a loan is truly the best option before proceeding.
  9. Reach out to the bank you already do business with – The bank you already work with may be your best bet for favorable terms, especially if you’ve had a long and positive relationship. Reach out to them first to see what they’re able to offer.
  10. Research local credit unions – Credit unions are member-owned and therefore often offer better deals than the big banks. Search for credit unions in your area and reach out to see what types of loans they offer and whether you qualify for membership.
  11. Apply with online lenders – Online lenders often offer shorter applications, quicker approvals, and better user experiences, but those benefits often come at the cost of higher interest rates. If you need money quickly, or if your credit isn’t ideal, these may be your best option. Either way, it’s worth applying to see what you qualify for. To compare offers for small business loans from various lenders, check out MagnifyMoney parent company LendingTree.com’s small business offer tool. 
  12. Compare the offers you received – Once you’ve shopped around, you can compare the loan offers you’ve received both to each other and to your borrowing needs. You should compare them along variables like the amount of money being offered, the interest rate, the frequency and amount of payments required, and the overall length of the loan, along with any other terms and conditions each loan comes with.
  13. Make a final decision – At this point you should be ready to make a final decision. And remember, not taking out a loan is still an option at this point, especially if none of the offers were exactly what you were looking for.

Alternatives to a short-term business loan

While a short-term business loan can be invaluable in the right situations, it isn’t your only option when it comes to financing your needs. Here are a few more to consider:

  • Future revenue – If you can afford to wait and you expect revenue to be coming in soon, you may be better using that future revenue to finance your project yourself. There’s no application process and no interest to pay.
  • Line of credit – As discussed above, a line of credit is a good option when you’re unsure how much money you’ll need and when you need it. You can secure the line of credit and simply borrow the money as needed, with the likely trade-off of borrowing at a higher interest rate.
  • Business credit card – There are a number of small business credit cards available, some of which provide a promotional period with 0% interest. If your borrowing needs are relatively small and you can qualify for these cards, you may be able to borrow the money cost-free.
  • Personal line of credit – If you can’t qualify for a business line of credit, you still may be able to qualify for a personal line of credit. Derus warns against this option, though, since it blurs the line between you and your business, which can lead to you being personally liable for your business’s obligations. And she warns about following all relevant tax laws, such as calculating imputed interest, when using personal money in your business that you plan to pay back to yourself.

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