How Short-Term Business Loans Work

by | Mar 24, 2022 | Business Finance | 0 comments

The critical difference between a short-term business loan and a long-term loan is the time you have to repay the loan. On average, business owners will repay short-term loans within a year or less. Depending on what you need the money for, you have to ask yourself, do you want to be paying the money back for a decade or so, or would you instead procure a short-term loan and have that loan paid off in less than 18 months? This is important to keep in mind when applying for business funding.

For many businesses, particularly if they’re looking to get cash for an immediate project, take care of an emergency that has arisen, or launch a new campaign. Getting a short-term loan will likely make more sense than committing to something long-term.

The Benefits of Short-term Financing

Perhaps the most significant benefit of a short-term loan is how quick the entire process is, start to finish. Let’s say some crisis or emergency does come up, and you need the money to take care of it ASAP. You can usually get the funds required within 1 to 2 days with a short-term loan. And as noted, the loan terms are generally a year or less. This way, you’re not accumulating more significant debts over a long period. You get the money you need, and you get to pay it off quickly.

Short-term loans can also help you with your cash flow position. If there is a point where cash flow is slow, then looking for a short-term loan to help with this issue could make a great deal of sense for your company. With added cash flow, businesses are better positioned to do things that will help get to that next level, whether a difficult period and help undertake a project that could mean a significant amount of income for the business.

Often, short-term loans come with flexible repayment options. Many lenders may be willing to customize your short-term loan depending on what works with your specific business needs and overall budget.

Many short-term loans do not require collateral. Some even don’t necessarily require that you have perfect credit. This makes approval odds for this particular type of loan better than other forms of financing. Especially if you are working with an alternative or online lender, your approval odds increase significantly for a short-term loan.

Applying for a Short-term Business Loan

The good thing is applying for a short-term business loan is relatively easy. Again, working with an online lender has its benefits versus going with a traditional bank or conventional lending institution. So, what does it take to ensure that you put yourself in the best position possible for getting approved for this kind of loan?

You will generally first fill out an online application. At that point, a representative reaches out to you to review the rest of the application process and specifically address your needs. You will be asked to submit certain documents and information to complete your loan application packet. This could include:

  • Tax returns, both personal and business
  • Financial statements, which include balance sheets, cash flow statements, and profit and loss statements
  • Articles of incorporation, if applicable.
  • Any business leases that you may have or information on business property that you own
  • While this may not always be required, a business plan can certainly help if other aspects of your application are weak.

Once you submit all of the requisite information and the needed documents, you wait for a decision. With an alternative or online lender, this decision usually comes the same day, followed by the cash being deposited into your business account within two days. You are not waiting weeks for the money to hit your account to get started on your project or boost that cash flow. It is there almost immediately.

Some Things That You Can Use a Short-term Loan For

Small businesses across the country utilize short-term loans in a myriad of ways. Among some of the more popular ways:

  • Hire on more personnel
  • Launch a new product or a new marketing initiative
  • Move into bigger office space or warehouse space
  • Perform repairs on your existing workplace
  • Get through a difficult financial period, especially if you are a seasonal business and have slower sales times than others

While there are many loan types out there for small businesses, a short-term loan is probably the most popular by far. This is not only because of how easy it is to get but also how fast the entire process is.

First Union Lending is Here to Help

We work with all types of businesses across the country. And we have funded hundreds of companies using loan products that include short-term loans, merchant cash advances, and equipment loans, among other financing types. If you need additional cash for whatever reason, we would love to consult with you. Call today, and let’s get started.