What is a Short Term Business Loan?
The term “short term business loan” refers to a lump sum of money provided to a company that then uses the capital for a business opportunity purpose. Such purposes may include working capital, equipment purchases, expansion or renovation, and an abundance of other needs.
How Long Are the Terms?
The use of “short term” means that the terms consist of a fixed length and/or period of time in which the borrower has to repay the loan. With a short term loan like this, the repayment period is usually designated at a time frame of 18 months or less. Short–term — fixed-term loans can have fixed costs built into the loan monthly repayment plan, or they can be based on an interest rate with principal and interest. Small business owners who needs access to funding fast, this short-term loan product is for you. Most lenders/funders can fund you in 24 hours or less after approval with your cooperation.
Who Can Qualify?
Anyone who currently owns a company with revenue can qualify. Qualifications such as credit requirements, sales volume, time in business vary depending on the funding product you are applying for.
Short term loans allow owners who have some challenges with more traditional short-term loan products an opportunity to still get the funding they need for their company.
The benefits of a short term loan allows for one or more of the following Qualification issues
- Substandard, Mid Prime to Subprime Credit
- Low monthly or annual revenue
- Challenged or no financial statements available such as Tax Returns, Balance Sheets, Profit & Loss
- Business Bank Statement issues such as low daily balances and/or Overdrafts or NSF’s
- Less than 3 years in business
- The need for Speed. Need money faster than the traditional process allows
What Are the Most Common Reasons to Acquire a Short Term Loan?
- Emergency capital
- Working Capital
- Cash Flow shortages
- Advertising/Marketing/Customer acquisition
- Small Equipment Purchases
The 7 Best Short-Term Business Loan Options
Short-term loans are a lump sum fixed amount upfront, with a fixed period of time to repay, typically within 6 to 18 months. These are a great solution when you cannot get approved for more traditional loan products. A “factor rate” or fixed cost of money is charged for most loans of this kind. Documentation requirements, as well as credit score requirements, are more lenient than traditional loans as well. Payment frequency is bi-weekly, weekly, or in some cases, Monday through Friday, and terms are shorter to compensate for the higher risk. Because of these features, it may have higher approval rates than traditional lending options.
Rates: Factor rates from 1.09% up to 1.35%
Terms: 6 to 18 months in duration (typically 12 months or less)
Fees: Origination Fees from 0% to 3%
Payments: Weekly, Bi-Weekly and in some cases daily Monday-Friday
Credit Standards: All credit types considered
Processing Time: Fast Funding: Same day funding up to 24 hours
Business Line of Credit
A business line of credit is an open revolving line of credit. The product allows the owners to draw funds at will or make purchases up to a set limit. A business line of credit charges a principal & interest rate and requires either a renewal semi-annually or annually to be extended. Business lines of credit offer flexibility in accessing capital that many other short-term loans do not have.
Rates: Interest Rates starting treasury index plus 1% to 2.5%
Terms: Open Revolving line of credit
Fees: Origination Fees ranging from 0% to 3%
Payments: Monthly, Bi-Weekly or Weekly payments
Credit Standards: Good to Excellent credit preferred. All credit considered.
Processing Time: Quick processing times: Same day funding or up to a week
Business Cash Advance
Business cash advances (BCA), also known as a purchase of future sales agreements, advance money off of future sales. The owner is responsible for paying back a fixed payback amount known as a specified amount, which is greater than the amount that was advanced to the company. A “factor rate” is charged, which is the difference between the advance amount and the payback amount. Factor rates do not function like principal & interest rates in that it is a flat fixed cost of money charged.
The BCA is repaid by taking a fixed percentage (specified percentage) of future overall sales deposits. The payments are collected by an ACH fixed daily or weekly payment deducted from a small business’ bank account based on the specified percentage of future sales. Reconciliation can occur at the end of every month if the fixed payments exceed the month’s fixed set percentage of sales, as described in the agreement. There is no term limit to a business cash advance.
Rates: Factor rates range from 1.09% up to 1.35%
Terms: No term limits. Repayment period dependent on future sales
Fees: Origination Fees 0% to 3%
Payments: Weekly or daily Monday-Friday Fixed ACH payments
Credit Score Standards: Poor to Excellent credit accepted.
Processing Time: Fast Funding: Same Day to 48 hours
Merchant Cash Advance
A merchant cash advance (MCA), also known as a purchase of future sales agreement, is similar to another small business financing option, but the difference in terms of the repayment process. Merchant cash advances are connected to future credit card sales instead of overall sales. MCA’s take a set percentage of future credit card sales until the advance is paid back in full. The payment process provides more flexibility in repayment versus alternative loan solutions.
Rates: Factor rates ranging from 1.09% up to 1.45%
Terms: No term limits (payoff depends on future credit card sales)
Fees: Origination Fees 0% to 3%
Payments: Set fixed Percentage of future credit card sales withdrawn at time of batch of credit card sales
Credit Standards: All credit Considered
Processing Time: Same Day to 24 to 48 hours
Invoice financing advances money through outstanding issued invoices that a company has in accounts receivable, but not yet collected. Invoice financing allows access to capital quicker and avoids waiting for outstanding invoices to be paid by the client. The invoice finance company advances the money to the small business owner in exchange for a nominal fee. The invoice factoring company assumes the collection of the invoice and relinquishes the responsibility of collecting on those invoices by the small business owner.
Terms: No term limits
Fees: 1% to 3% fee based off Invoice. Monthly Service fees depending on volume of invoices factored
Credit Standards: Credit of the Clients need to be favorable NOT the small business owner advancing off invoices
Processing Time: Advances issued daily off of invoices created. Typically 1 week to set up Invoice financing relationships.
Purchase Order (PO) Financing
Purchase Order (PO) financing does not require any money out of the pocket. It is a finance option that provides the ability to raise capital to pay suppliers upfront for verified purchase orders. The advance frees up cash flow that they would ordinarily need. Purchase Order financing can finance an entire order or a portion of it, depending on the purchase order and scenario. When a supplier is ready to ship the order, the supplier will request payment to which the purchase order financing company will advance the money to the supplier and then collects payment directly from the customer. The purchase order funder then will subtract their fees and then sends the balance of the invoice, so they act both as an advancing company and collection company.
Terms: No term limits
Fees: Purchase Order fees range between 1% to 6% of Purchase Order depending on risk
Credit Standards: All parties need a favorable credit score history
Processing Time: It takes a few days up to a week to set up purchase order financing
Business Credit Cards
Business credit cards are open credit lines that are revolving and charge a principal & interest rate with a credit limit. They function the same as personal credit cards. A plastic card is issued that can be used for making payments or purchases. Great for company needs on-demand.
Rates: Introductory rates starting at 0% up to 28.99%
Terms: Open revolving line of credit with a credit limit
Fees: $0 to $500 Annual fees
Payments: Flexible low monthly payments
Credit Score Standards: Must have good to excellent credit score
Time Frame: Instant approval to same day available
The fast, convenient and straightforward way to get the money you need for your business – now! Get Your Quote Today by filling out our simple form.
What are the Pros and Cons of Short Term Business Loans?
Access to capital when other traditional options are not available
Fast Processing time usually same day to a couple of days
No Upfront fees for services rendered
Rates can be higher than traditional lending
Smaller loan amounts due to the shorter term
How to Apply for a Short-Term Business Loan?
There are a variety of short-term loan products. A good rule of thumb when looking at a short term loan is better the costs, rates, and terms the more information (paperwork), requirements, and length of time it will take to get an answer.
What you will find with most lenders and funders is that an application for business loans will have to be filled out either offline or online that will include many of the following pieces of information;
- Owner’s Personal information includes full name, home address, company email, social security number, date of birth, ownership shareholder percentages.
- Legal Name and DBA if applicable, company address, company number, website.
- Time in business under current owners control, registration date with the State you formed
- Business Bank relationship information
- Company Landlord information or Mortgage information if you own property
- Description of company and its activities
Document(s) you may need include but not limited to*;
Company Bank Statements
*Requirements can vary. Some require only bank statements. Others will require more.
Advice, Tips, and Benefits about Short-Term Business Loans
With short-term loans, it’s important to ask questions and do your research about what products are available. With so many business loans out there, it can be difficult to choose the right one.
Ask the tough questions when you begin your short-term loan search. Always start by asking why do I need the money and how am I going to put it to good use? Have I been given all funding options in the marketplace, and am I getting competitive rates, costs, and terms for my situation? Always take the time to do a cost verse benefit analysis for borrowing money for the company with a short term loan.
Check your offers, term sheets, and agreements for terms and conditions, which should include the cost of money (interest rate or factor rate), all closing or funding fees, term duration, payment frequency, personal or guarantees, and any collateral requirements for the short term loan as well. Attempting to qualify for loans requires a lot of research and knowledge about your own company in order to weigh the pros and cons of various loans and their benefits to you. There’s a wide variety of loans for businesses available, but choosing the wrong loans can have a significant impact on your company’s future.
Using AdvancePoint Capital’s Funding Marketplace
Applying for a short term loan with AdvancePoint Capital is as simple as a 1, 2, 3, 4 process. Start with this online form, then fill out the short application page, wait a few hours for your approval, and then get your cash flow.