How Short Term Loans Can Help When You Can’t Predict the Future

5 min read • Aug 02, 2021 • Barry Eitel

Even as the United States seems to be closing in on the end of the coronavirus pandemic, uncertainty abounds driven by the rise of the delta variant, large numbers of unvaccinated Americans, and COVID-19 hotspots popping up around the world. Even before the pandemic slammed into our lives in March 2020, if you were paying attention to economists, you knew that many were saying we were facing an unsure future. As a small business, how can you maintain while the earth underneath you is constantly shifting?

Before the 2020 lockdowns, America was experiencing its longest economic expansion in history, which was experienced unequally across the socioeconomic spectrum. The economy and stock market had been growing since 2009—until the pandemic stopped this upward trend in its tracks. Even before coronavirus, though, many top financial experts had been predicting a recession for several years—although they didn’t know the tragic particulars of what would happen. Now, the economy seems to be booming to new heights, but we’re all well aware of how unpredictable the future is.

Small business owners, though, need to always be ready for unpredictability. Even if the turbulence isn’t on a global scale like the coronavirus pandemic, office rents can suddenly increase, a competitor can open close by, or customer tastes can change unexpectedly. Many small businesses are woefully unprepared for uncertainty, but with some strategizing, you can bolster your company’s ability to ride out unpredictability both near-term and further in the future.

One way small businesses can prepare for future uncertainty is through the responsible usage of short term loans.

As the name suggests, short term loans are loans with short application timelines and shorter repayment periods than long term loans you might receive from a traditional lender like a bank.  

“A short term loan is the sprinter of the loan world—you can get funds in as little as a day,” according to Lendio’s definition. “Built specifically for speed, you can use it to meet sudden financing demands like new business opportunities or managing cash flow. And if you need unexpected cash for your small business, a short term loan can be a convenient antidote.”

When you think about a small business loan, you are probably thinking of a term loan. You might imagine an entrepreneur going to a bank, filling out forms, boasting about business plans, and leaving with a large loan to fund their dream. This scenario isn’t the reality of term loans, though. Typically, your credit needs to be sterling, your business needs to be poised for success, and you must require a large amount of funding—perhaps $1 million or more. Repayment periods typically span several decades.

Short term loans are a faster, smaller, and less demanding alternative to these term loans.  

Along with products known simply as short term loans, there are other financial products that function like short term loans but may have different application processes:

  • Merchant cash advances
  •  Lines of credit
  •  Invoice financing
  • Overdraft agreements
  • Accounts receivable financing

Short term loans have less stringent application requirements and are approved quicker than term loans. On the other hand, the repayment periods are shorter, and you should expect interest rates to be higher, although this isn’t always the case.

“Short term loans provide quick cash when your cash flow is lacking, have shorter repayment periods than traditional loans, and are an extremely attractive option for small businesses that are not yet eligible to apply for a line of credit from a bank,” suggests Sean Peek of the US Chamber of Commerce. “While the credit limit for short term loans is lower than a line of credit, short term loans are viable solutions to alleviate sudden temporary financial trouble.”

It is this speed that makes short term loans ideal for providing defense for uncertainty. If you can sense strong headwinds are coming, you can use a loan to help bolster your business in a short timeframe. Even when times are good, having some funding via a loan can provide a cushion. Furthermore, receiving a short term loan sets you up to be approved for more short term loans in the future.

“Because the loan amounts are limited for short term loans, the lending requirements are usually more relaxed, making it easier to get approved,” Peek continues. “The approval and funding timelines are faster as well.”

In terms of specifics, short term loans are usually for amounts not exceeding $500,000—and often for much less. Repayment terms are generally only a few years at most and sometimes as short as a few weeks. You can be approved in as little as 24 hours, and even people with credit scores as low as 650 are often approved.

Interest rates can range widely—from 8% to 30%. There might also be fees, so remember to read the fine print closely.

It can save you a great deal of money to shop around for short term funding. You should also look at alternative lending options like invoice factoring and merchant cash advances to see if one of them may be a better fit.

“While there are numerous options from which to choose, not all deliver the same benefits,” explains Tom Coletta of Axiom Bank. “Make a short list of potential lenders by shopping around to compare offers. As you go through the process, keep in mind that bigger isn’t always better—or safer.”

You might think a short term loan is an option just for those companies struggling to make it through another month. This isn’t the case. Smart administration and application of short term loans can protect your business and help you expand even though the world is unpredictable. Beyond this, being able to operate in an uncertain world gives you a leg up on your competition.

Look at short term loans as another tool in your box—they can help you expand in flush times and provide a layer of financial protection in an unsure environment. 

Barry Eitel

Barry Eitel has written about business and technology for eight years, including working as a staff writer for Intuit's Small Business Center and as the Business Editor for the Piedmont Post, a weekly newspaper covering the city of Piedmont, California.