As you may have heard, raising capital from banks can be difficult if you’re starting or running a small business. However, there are resources available to help you find the funding you need, such as the Small Business Administration’s 7(a) loan program or community banks and credit unions in your area. Whether you’re searching for business financing or thinking about applying for a loan, understanding how the process works can help you get the most out of it.
What are short-term business loans?
Short term business loans are typically what most small business owners turn to when they’re looking for short-term financial help. That said, it can be tricky to figure out which loans are the best option for your needs and how much you can expect to get as well. Below, we’ll talk about the basics of what these loans are and how you might go about getting one so that you can find the perfect one for your needs.
In order to qualify for a loan, borrowers need a good credit score, proof of income or assets in their name, and must have been employed at their current job in some capacity within the last two years.
A quick review of your options
A business loan is often used as a short-term option, to provide you with enough funds to cover your bills until the sale of your product or service pays off. For this reason, it typically comes in much smaller increments, averaging $15,000 – $25,000.
There are many options available if you’re looking for a short-term business loan. The most popular options include peer-to-peer lending and lending companies. Both these programs are very different in how they operate and what rates they offer, so take some time to do your research before you go forward with any one company.
Let’s Get Started With Securing Short-Term Business Loans
It can take months to get approved for traditional loans and many lenders aren’t receptive to start-ups. This is where short-term business loans are key. These loans are easier to get approved for, especially if you have no personal credit or collateral, and they typically don’t last as long (ranging from six months to five years). In the meantime, you’ll need to make monthly payments until the loan is fully paid off.
The only downside to these loans is that they tend to have high-interest rates and fees. In some cases, you can find lenders who’ll offer a lower APR on your short-term business loan, but if you plan on paying off your loan early, then these rates won’t be such an issue. All in all, if you need some quick cash for any reason, go ahead and consider using one of these types of loans. They’ll help keep you moving forward with your goals without putting unnecessary strain on your finances or credit score.
Step 1 – Understand the Problem
If you have a great idea but need some capital to get it off the ground, start by looking at your personal finances. Can you save up enough money to buy what you need and then replenish those funds within six months, or as soon as possible thereafter? If not, that may mean that it’s time to take out a short-term business loan. Keep in mind that such loans often come with interest rates significantly higher than those associated with traditional bank loans because they are designed for use by smaller businesses rather than larger ones. You’ll also likely be required to provide collateral for such loans; if something goes wrong with your new business and you find yourself unable to repay the loan, your collateral will be used to cover the difference.
Step 2 – Establish Your Personal Credit Score
Your score is primarily influenced by how often you pay your bills on time. A key factor in obtaining financing for your business is proving that you can be trusted to make payments on time and maintain obligations (e.g., repay loans). You may be able to find out your credit score before applying for financing. Some lending institutions will offer to run your credit report in advance as part of the loan application process, which will save you both time and money.
Step 3 – Research All Available Options
One way to find the right loan for your business is to compare rates and terms among all of your available lenders. If you have good credit, you may be able to get approved for short-term loans with lower interest rates. But if your credit score is not so great, then you might need to look at other options, such as bridge financing or venture capital.
Step 4 – Research your Financing Options Online
One way to find out how much your business can afford to borrow is by conducting research online. Start by identifying the purpose of your loan, and decide if you’re looking for long-term financing or short-term financing. In most cases, short term loans are easier to obtain than long-term loans. Most short term loans are unsecured, meaning they don’t require collateral to back them up in case of default. They generally have lower interest rates than unsecured personal loans, and they allow borrowers with shaky credit histories or no credit history at all the opportunity to borrow money from lenders.
For these reasons, it may be beneficial to take out a short-term loan before pursuing other options such as refinancing an existing mortgage.
Step 5 – Find the Best Terms for Your Small Business Loans
One way to get the best rates is to research and comparison shop your options before applying. Some companies may offer lower rates on one particular loan but charge more for others. However, these companies may be newer and have less to lose. You should also take into account any discounts that are available, such as cash back or complimentary interest on payments. Some lenders will offer discounts if you repay your loan early or pay in full over time.
If you think you may need to use more than one business loan in your lifetime, investigate lenders that offer a line of credit as well. These types of loans allow you to access funds when they’re needed and pay them back later, which can help keep your interest payments low and maximize flexibility. You may also be able to choose between fixed or variable rates with a line of credit. However, most lines of credit are still unsecured loans, meaning no collateral is required for approval (as opposed to mortgages or car loans). Additionally, some companies don’t require any paperwork—meaning there’s no waiting period and you could receive funds in 24 hours if approved.
If you have collateral for your loans, such as real estate or assets, you may be able to get better terms. This could include lower interest rates and lower down payments on some loans. However, depending on what type of collateral you’re offering, approval may take longer than with unsecured loans. There are also some limits to what’s eligible for a secured loan—for example, some lenders won’t accept the personal property as collateral.
Step 6 – Choose the Company That Fits You Best
A lot of lenders have the misconception that it is easy to apply for a short-term business loan. In reality, you will need to be pre-approved by your financial institution before you can get this type of loan. What this means is that the process can take up to 10 days from start to finish. While some lenders will be happy if you come into their offices and meet with them in person, others may allow you to complete your application online. However, there are some drawbacks to doing this as well. If you make an error in your application, it can take weeks before they approve or deny your request.
Once you have chosen which company to apply for your loan with, you will need to decide what type of lender works best for you. While some lenders will focus on small business loans that are between $5,000 and $250,000, there are also companies that may offer up to $2 million in loans. Keep in mind that rates vary depending on your own personal credit history and income levels. Some lenders do specialize in offering more favorable terms if your credit score is not great or if you have filed for bankruptcy previously. If they don’t offer these things directly themselves, they can still help direct you towards one of their partner locations that will meet all of your needs.