Business loans differ from a personal loan as they are used by companies, businesses or trusts for the purposes of business only.
There can be quite a few reasons why you want to consider short-term business loans to include boosting your company’s cash reserves, needing money to cover the cost of a lucrative new contract, paying off a large bill, or seeking funds to expand your business.
Before applying for short-term business loans, there are a few key things to be mindful of, and we’ll cover some of the important ones in this article to help you make a more informed decision.
#1 – When should I consider a short-term business loan?
Short-term business loans are the best option when you have the financial means to get the debt paid back relatively quickly. An example might be needing the money to fulfil a new contract, and once you’ve completed the job and been paid, you then repay your business loan amount in full. Short-term business loans usually have a term of two months to 36 months. Common loan sizes are from $25,000 to $500,000.
#2 – What can a business loan be used for?
Common short-term business loan uses include:
- Purchasing stock or equipment
- Fulfilling a new contract
- Payment of wages
- Time lags between invoice payments
- Paying a tax bill
- Starting a business
- Investing in an established business
- Buying an existing business
- An opportunity too good to miss!
#3 – How much money can you borrow?
All lenders are different and will offer a variety of minimum and maximum loan amounts. Typically speaking, most short-term business loans range from $25,000 to $500,000. You can apply online for short-term loans from a variety of lenders, with private lenders and fintechs offering a relatively simple application process, minimal documentation and fast funding (within three to five days from application).
#4 – Is your credit history going to affect your loan application outcome?
Different lenders will vary in their lending criteria (i.e. what documentation they require to assess your eligibility of getting a loan). Some lenders will enforce stringent credit checks, where they delve into your credit history and take note of your current credit score as a core determining factor as to whether you’re eligible to receive business funding. Other lenders, particularly those in the private lending sector, may be a bit more lenient in this regard. There are even lenders who offer business loans with no credit checks or income assessments.
#5 – Does the loan need to be secured?
There are two main types of short-term business loans: ‘secured’ and ‘unsecured. With a secured loan, the lender requires an asset (typically a property) to ‘back’ the loan. Conversely, an unsecured loan does not require an asset as security to obtain the loan. Typically, an unsecured loan will attract a higher interest rate as this loan type is deemed as riskier to the lender. Though independently of the loan size, and type, it’s critical to ensure that you have the means to repay the loan within the agreed loan period.
Anyone who has run a business understands that a cash flow crunch can occur for any number of reasons, no matter the size of the business. Short-term business finance provides a simple solution and fast injection of funds to alleviate a credit squeeze and let you focus on running your business. As such short-term business loans can be a good solution for business growth, or to help businesses get out of a bind.