Easiest Business Loans To Get Approved For – Editor’s note: SoFi’s Lantern is committed to providing objective, independent and accurate content. Writers are separate from our business operations and receive no direct compensation from advertisers or partners. Learn more about our editorial guidelines and how we make money.
Does your small business need funding now but don’t have the cash on hand to cover any expenses incurred? Short-term small business loans may help. In this guide, we’ll discuss short-term loans and their pros and cons, the types of short-term business loans available, how to apply for this financing, and alternatives What is a short-term small business loan? A short-term business loan is a type of financing with a repayment term that is typically less than a year, although repayment terms vary slightly by lender. For example, some lenders may offer short-term financial products with terms of 18 months, while others may offer products with terms of just a few months. In contrast, long-term business loans have terms of more than one year and typically include higher loan amounts. While the specifics of any financing ultimately depend on the lender’s requirements and the borrower’s qualifications, compared to longer-term loans, short-term small business loans typically have: Financing is faster Easier to qualify Lower overall cost Who provides short-term business financing? Short-term term loans are typically associated with alternative lenders that offer online business loans, but banks and credit unions also offer certain types of short-term financial products. Applications and approvals from online short-term lenders are often completed within days or even hours. So if your business needs quick access to short-term funding, you may want to compare online lenders before heading to a bank. Here is a sample of lenders offering short-term loans based on a Google search query for “best short-term business loans”: Lender Rates start at: Minimum time in business Credit score required Loan amount BlueVine line of credit is 4.8%, invoice factoring is 0.25 per week % Credit limit is 6 months, invoice financing is 3 months Credit limit is 600 or higher, invoice is 530 or higher Factoring credit limit up to $250,000, invoice factoring up to $5 million Trust factor rates from 1.15 .6 months starting at 500 or higher up to 400,000Kabbage Business loans do not operate on traditional APRs. Kabbage charges monthly fees incurred over the life of the loan. 1 Year Kabbage Check your credit and look at your business income to determine how much funding you can get. Your annual income for the past three months should be $50, 000, or $4,200 per month. Lendio interest rates start at 8% for up to $150,000, and new startups may qualify. However, how long you have been in business will affect which loan products you qualify for. Good personal and business credit can help you obtain more capital and favorable interest rates and terms. A business credit score of 75+ is considered excellent, but 50 or higher is usually sufficient. $2, 500 to $500, 000All information accurate as of November 15, 2021. How do short-term small business loans work? Small business loans are designed for business owners who need funds because they don’t have the cash on hand to cover an immediate expense or series of expenses. Like other types of loans, short-term business loans start with an application. If approved, the borrower will receive funds from the lender and repay the money borrowed over time. Short-term business loans can take a few different forms (which we’ll discuss below), such as a line of credit, a cash advance, or a traditional loan. What are short-term business loans used for? Small businesses often choose short-term financing to pay for small or emergency purchases. But it can be used for the following short-term loan purposes: Working Capital: To pay short-term debts and daily expenses Inventory Purchase: To replenish inventory or prepare for seasonal inventory needs Maintenance Cash Flow: To maintain available cash to meet daily needs, when inflows are low or delayed Weekly and monthly expenses Marketing: To fund short-term marketing campaigns Expansion or improvement: To fund equipment refreshes, employee bonuses, competitor acquisitions, or other growth-related costs Unexpected costs: Without compromising the normal operations of the business Pay Emergency Expenses Finance Who qualifies for a short-term small business loan? Almost any type of business owner may qualify for a short-term loan. Shorter repayment terms and lower borrowing amounts mean less risk for the lender compared to longer-term loans. The following types of businesses, among others, may qualify for short-term business financing: New ventures Businesses or individuals with bad or no credit Newly established companies Typical rates and fees for short-term business financing vary, but Short-term business loans generally have higher annual percentage rates (APR) than long-term loans. The APR is the total cost of the loan, interest, and fees. Interest rates (not APR) for short-term business financing options under five years old (other than invoice factoring and business cash advances) typically range from 8% to 13%, but this can vary depending on lender and borrower qualifications. Alternative short-term business financing, such as business cash advances and invoice factoring, use factor rates rather than interest rates, and annual interest rates can reach triple digits. Factoring fees are calculated as decimals rather than percentages and are multiplied by the cash advance amount to calculate the total cost of financing. The factor rate is typically 1.1 to 1.5 times the cash advance amount, depending on the industry, business history, and revenue. In addition to the interest rate or factor rate, there may be fees associated with your short-term business loan, including: Application fee: A fee to process your application and set up your account Early repayment fee: Some lenders may charge a fee to pay off your loan early Fees: Charged at timed intervals to cover ongoing charges associated with your account ACH or bank wire fees: For certain types of loans, short-term small business loans, bank transfers of funds between the lender and borrower may incur fees for early termination : Some companies may charge a fee if you choose to cancel your contract early. Types of Short-Term Small Business Loans Lenders offer a variety of financial products to support businesses that need quick financing. The following products are common short-term options. The annual interest rate on any short-term business loan is likely to be higher compared to a long-term business loan. Term Loan A term loan is when you receive a fixed amount of money and the lender sets a repayment schedule and interest rate. Short-term lenders typically offer term loans with repayment terms of 12 months or less. Business loan terms depend on the borrower’s qualifications, loan amount, and other conditions set by the lender. Business Line of Credit A short-term business line of credit is similar to a credit card, but can be secured by collateral and may offer a lower interest rate. They provide companies with financing up to a maximum limit and charge interest only on the unpaid balance. For example, if you get a short-term line of credit with a limit of $20, 000 but don’t spend any money in the first month, you won’t owe anything. Then, if you spend $1,000 next month, you owe the minimum payment that month, and interest will accrue until it’s paid off. Details of repayment terms and requirements will depend on the qualifications of the lender and your business. These lines of credit can help manage cash flow and provide flexibility to access funding on a recurring basis. Invoice Financing and Factoring Invoice factoring and invoice financing are different short-term financial products for businesses that issue invoices to customers on a regular basis. They are often best suited for B2B companies that experience irregular billing cycles due to late invoice payments. Invoice financing uses invoices as collateral to receive a cash advance, but your business remains responsible for collecting those invoices. Invoice factoring means selling invoices to a factoring company, and the factoring company collects payment. The repayment terms for these short-term financing options typically range from 30 to 90 days, coinciding with the due date of the invoice. Inventory Financing Inventory Financing is a short-term, asset-based business loan used to purchase inventory so your business can maintain cash flow. Inventory that your business owns or intends to purchase can serve as collateral. Short-term lenders provide financing based on a percentage of the value of your inventory. If you default on your loan, the lender can seize the inventory you used as collateral. Typically, the repayment term is one year, but it varies depending on the lender. Merchant Cash Advance A merchant cash advance allows small businesses (“Merchant”) to receive a cash advance in exchange for a portion of their future sales or accounts receivable. There are two ways merchant cash advances can be repaid: The lender withdraws a percentage of the merchant’s daily credit card deposits. Lenders withdraw funds from merchants’ bank accounts, also known as Automated Clearing House (ACH), every business day. This option is often considered a poor choice for businesses that have difficulty qualifying for other types of financing. Technically, business cash advances are not loans, and providers are generally not subject to the same government regulation as actual short-term lenders. Therefore, it is important to do your research and make sure you trust the cash advance company. Pros and Cons of Short-Term Business Loans The financing offered by short-term lenders may be a good fit for a variety of small business needs, but sometimes they may not be the right choice. Before you make a final decision on whether to choose a short-term business loan or other financial product, it helps to understand the pros and cons.