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Short-term loans are designed to meet the immediate financing needs of small to medium-sized businesses looking to enhance their business activities. Unlike long-term business loans, this type of loan has a much quicker repayment period.
Short-term business loans are often used to help business owners cover temporary cash flow gaps. There are a variety of different short-term loan options available to help you obtain the immediate funds needed for your business.
Here's what you need to know about short-term business loans.
A short-term business loan is a type of loan that provides a lump sum upfront to a borrower and has a repayment period ranging from three months to three years. The short repayment period makes this loan the better option for covering immediate cash flow gaps or emergency funding.
Small and growing businesses often prefer short-term loans for their quick funding time and the easily met requirements. These loans can be extremely beneficial during a growth period, fluctuating cash flow times, or when there is a need for seasonal purchasing.
There are a variety of short-term loans available that many businesses utilize to meet their immediate funding needs.
Short-term loans can come in various forms, each with its benefits to help fund a growing business.
Working Capital Loan: This type of funding is used to finance a company's everyday operations. Many businesses with high seasonality or cyclical sales may rely on working capital loans to help with periods of reduced business activities.
Lines of Credit: A line of credit also comes in various forms, each of which has its distinctions. It provides the borrower with a set amount of money to use for expenses, typically with the ability to make withdrawals throughout a given time.
Merchant Cash Advance: This is another type of cash flow loan, with repayment terms, depending on your credit and debit card sales. A Merchant Cash Advance provides borrowers with an upfront sum of cash in exchange for a percentage of their future sales or fixed payments through Automated Clearing House (ACH) withdrawals.
Invoice Factoring: This is a type of invoice financing where a business will sell their outstanding invoices to a third-party factoring company as a way of improving cash flow and revenue stability. The factoring company will pay a majority of the invoice with an up-front lump sum and will then collect the funds from your customers as payment.
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Much like a traditional loan, a short-term loan is a stable, predictable, and straightforward vehicle from which to borrow money. They are faster to apply for, easier to qualify, and more quickly funded than most business loans. This is due to the limited paperwork required, creating less hassle for you and a quicker processing time for your application.
Short-term loans have almost no limitations on their uses - borrowers can decide when, where, and how to spend the funds once they receive them within 1-2 business days.
Some instances where a short-term loan can benefit your business include:
Short-term loans are not intended for large, significant needs such as purchasing real estate or acquiring another business. They come in a variety of shapes and sizes - therefore, they will likely have their qualification criteria.
Fortunately, compared to other loan choices, a short-term loan is not difficult to obtain. The general qualifications for the application process may require the following:
Once approved, businesses can obtain their funds within 1-2 business days.
There are some significant drawbacks to utilizing a short-term loan. Due to its shorter payback times, rates can be higher than traditional loans. They cannot be used to fund a long-term project - failure to complete payments can cause a potential hit to your credit score.
Short-term loans work best for businesses in an emergency requiring funds that couldn't otherwise be spared. If you feel you do not fall under this category, First Union Lending can provide other funding options to help your business based on your requirements and qualifications.
Other loan options we offer:
At First Union Lending, we have an unwavering belief that small and medium-sized businesses deserve the right to access the capital they need to succeed.
Our goal is to build long-term, lasting relationships by providing business owners with what they need when they need it. We pride ourselves on being educated, knowledgeable, and caring when it comes to how we conduct business. We have voluntarily acquired much of the same licensing required by traditional banks to cement our fiduciary responsibility to our clients and our work culture.
We are here to consult, help you save, and guide you and your business to success.