What Are Short Term Business Loans?

When you can’t secure traditional financing and other alternative lending solutions don’t quite fit the bill, short-term business loans can be an effective solution for entrepreneurs who need capital to help support growth opportunities outside everyday operating expenses. Does this sound like you?

You need capital to scale your business and address regular operating expenses and strategic investments.
You currently cannot secure traditional financing, for example, through a bank, and don’t necessarily fit the criteria for invoice factoring or other alternative lending solutions.
You want to grow your business without committing to significant debt or a long-term loan that may create additional financial headaches.

Every strategic and financial move you make in your business can lead to success or stagnation, making access to capital a crucial ingredient. Let’s explore short-term business loans and their benefits to determine if they fit your business’s needs and goals.

What Are Short-Term Business Loans?

Short-term business loans are repaid over a set timeframe and are often used to invest in assets that will increase topline revenue and ultimately lead to an increase in profitability. A short-term loan may be a great alternative if your business does not fit the typical factoring profile or when you don’t require a significant lump sum. For example, a company may secure a term loan to buy equipment, expand the business, or pursue a project that has a long-term impact, making it a strategic tool in helping take your business to the next level without a hefty loan commitment.

How Do Short-Term Business Loans Work?

Short-term business loans operate much like conventional loans. You borrow a fixed amount and pay it back within a specific timeframe, usually a year or two. Unlike traditional loans, short-term loans from an alternative lender typically have a non-traditional screening process, which may accelerate the application and approval processes.

Short-Term Business Loans vs. Long-Term Business Loans

True to their names, short-term business loans have shorter repayment windows than long-term business loans. You may also consider other key differences when choosing one over the other. Here are the characteristics of both types of loans:

Short-Term Business Loans

Shorter repayment windows, typically up to 24 months
A speedier application and approval process with less stringent criteria to qualify
An ideal solution for smaller loan amounts

Long-Term Business Loans

Longer repayment windows, extending over several years or decades
A more thorough application and qualification criteria that may result in lengthier approval and funding processes
Geared for more significant loan amounts

There are pros and cons you should consider with each loan type. Your business’s credit history and financial situation will also dictate what you qualify for and the loan terms you’ll secure.

Every financial situation is different, with the cost depending on the loan amount, repayment terms, interest rate, and associated fees. Borrowing more than you need, missing hidden fees, or agreeing to unsuitable repayment terms can make term loans more costly.

Reputable alternative lenders strive to be transparent and should be willing to answer your questions and provide a breakdown of all associated costs. At Primary, our team will determine the right loan amount and tailor flexible repayment terms so you can continue operating, grow, and have some financial breathing room.

What Are the Benefits of Short-Term Business Loans?

Short-term business loans are a financial boost and strategic tool for business owners who want to invest, expand, and navigate slower periods. Additional benefits of short-term business loans include:

Flexibility

Tailored solutions based on your revenue patterns, business performance, goals, and industry-specific circumstances. Alternative lenders help entrepreneurs determine the appropriate amount to borrow and how to structure repayments to correspond with income generation to minimize further debt accumulation.
Transparency in loan amounts, repayment terms, and interest rates.

Non-traditional Screening

A reliable path to capital for business owners who may not fit into the traditional financing profile.
Alternative lenders typically review several factors besides credit history, such as projected revenue growth and other unique situations, to better understand your company’s potential and how to serve you best today.

Improving Financing Standing

Demonstrate your creditworthiness in a timeframe that meets your needs.
Faster repayment reduces your debt faster, strengthening your credit profile. However, choosing a reputable lender and ensuring you can comfortably manage the loan payments are crucial to avoid any negative impact on your credit.

Quick Financing

Alternative lenders prioritize speed and efficiency to cater to small business needs, which means less paperwork and back-and-forth with a loan officer.
After reviewing your application, credit history, and company’s financial position, funding is typically available within days for qualified requests.

Is a Short-Term Business Loan Right for Me?

A short-term business loan may help a business in the following situations:

Preparing for growth: Increase profits exponentially with additional equipment or other investments.
Refinancing: Get out of a high-cost loan from another lender to create more room for resources and investment opportunities.
Bridging a payment gap: Meet short-term needs, such as paying vendors, landlords, or employees on time, before a big payment arrives.
Managing seasonal income: Navigate revenue fluctuations throughout the year.

To determine if a short-term business loan is right for your business, consider the following:

A lender should thoroughly examine your business history and company’s financial position to determine which solution aligns best with your needs.
Work with a professional to structure your repayment terms to correspond with your projected revenue growth so you can keep operations regular while staying agile enough to scale.

At Primary, we seek to understand your growth opportunities and determine if a structured approach aligns with your company’s needs. Considering factors such as cash flow, business performance, and industry-specific circumstances allows us to tailor loan solutions to meet your business’s specific requirements, unique situations, and goals.