short-term business loans

Is a Short-Term Loan Right for Your Business?

  • August 9th, 2016
  • Tyler Heaps

If you need the money for only a short time, short-term loans can be a good option for any small business. For example, you need to purchase material to keep producing goods, but your suppliers are refusing to extend credit. Meanwhile, you are still waiting on the money for a contract you recently completed, which you fully expect to collect by the 15th of the month. The money you’re owed is more than enough to cover the short-term debt.

Taking a short-term loan in this case, even at a very high-interest rate, makes sense because it allows your company to keep working. With these loans, you receive your money fast, and they have more relaxed requirements than long-term loans. Short-term alternatives usually come in amounts from $5,000 to $250,000 and carry short repayment terms of a few months to several years. Most short-term loans reach maturity in less than a year.

If you need to handle a crisis, overcome cash flow gaps and unforeseen costs or fund a small expansion, short-term loans can get you the required funds. Also, there are stages in the life cycle of any business when a chance to grow materializes with little or no warning. A short-term loan can provide you with the capital reserves needed to seize such opportunities. A vital piece of equipment might stop working, or damage from an accident may not be fully covered by insurance. Short term loans can cover these expenses if you’re low on capital.

A short term loan can effectively improve your business’ credit score. Borrowers tend to see a fast improvement in their credit since the majority of short-term loans must be paid back within the span of a few months. You can get another loan at a lower interest rate once you’ve raised your score. It’s important to note that the interest rates on short-term loans are usually higher in a healthy economy. Rates often fall when the economy enters a recession.

How Can I Procure a Short Term Loan for My Business?

Lendio offers a number of short-term loan options, including cash flow loans, where you receive funds within 3-5 days. Lendio is not a lender but matches small businesses with the loan products that best suit their needs. If you visit the site, you’ll see that you can also access term, equipment, and term loans, all of which are very good short-term options.

There’s a good chance that your request for a loan will be accepted if you make a convincing business case. Outline the purpose of your loan, first of all. Below are some questions to help you decide whether a short-term loan is right for you:

  1. How are you going to use the monies?
  2. How much do you need?
  3. Are you comfortable paying it back over the long term?
  4. When will the funds be needed?

Jot down the answers to these questions before you start the application process.

In order to determine which option makes the most sense for your business, you need to consider your loan purpose. Accessing capital is a great challenge for many entrepreneurs and today’s world of small business lending demands that you become savvier about your options so you can match your needs to the right loan.

Short-term loans are great for contractors in the construction industry, who may need to cover supply and staff costs during slow periods. If yours is a seasonal business, it may also be the perfect candidate for a short-term loan. Other good candidates include food and beverage businesses, and the clothing industry. Short-term loans have also proved to be lifesavers for many startup businesses.

Most banks will also want to see a business plan before they lend money. A break-even evaluation that shows when your venture is expected to begin making a profit is vital if yours is a new company.

Remember, you have options if you or your lender decides that you’re not the ideal candidate for a traditional business loan. Consider a short-term loan using the Lendio platform to match you with the lender that best suits your needs.

About the Author

  • Tyler Heaps

Tyler is a member of the Lendio marketing team. He is passionate about digital marketing, small business, and helping small business owners succeed. Tyler is an outdoorsman and loves spending time with his family.

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