Top Short-Term Small Business Loans in 2023

Q: How long is a short-term business loan?

Short-term business loans typically range from three months to seven years, but may vary by lender.

Q: Who is eligible for a short-term business loan?

Most small businesses are eligible for a short-term business loan, including startups and those with poor credit. However, in order to qualify for the best rates, you’ll need a good credit score, solid monthly revenues, and six months or more of business history.

Q: What is the shortest term for a loan?

While most short-term loans are paid back in one to two years, some lenders may require the loan be paid back within three months.

Your Guide to Short-Term Business Loans for 2022

LanternUpdated November 28, 2023

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

If you need money for your small business right now, but don't have the cash on hand to cover whatever expense has arisen, a short-term small business loan may be able to help.In this guide, we’ll discuss short-term lending and its pros and cons, the types of short-term business loans available, how to apply for this financing, and alternatives to these options.

What Are Short-Term Small Business Loans?

Short-term business loans are a type of financing that have repayment terms typically between three months and seven years, though repayment periods can vary slightly depending on the lender. For instance, some lenders may offer short-term financial products that have 18-month terms, while others may offer products with terms that last five years. In contrast, long-term business loans have terms that can span over the course of many years and typically include higher loan amounts. While the details for any financing ultimately depend on the lender’s requirements and borrower qualifications, when compared to long-term loans, short-term small business loans typically are:

Faster to fund
Easier to qualify for
Lower in total cost

Who Offers Short-Term Business Financing?

Short-term lending is often associated with alternative lenders who offer online business loans, but banks and credit unions also offer certain types of short-term financial products. Online short-term lenders' applications and approvals, however, are often finalized within a matter of days or even hours. So, if your business needs short-term funding quickly, you may want to compare online lenders before heading to the bank.Here’s a sampling of lenders that offer short-term loans:

Lender	Rates start at:	Minimum Time in Business	Credit Score Required	Loan Amount
Funding Circle	Varies depending on creditworthiness	Two years	660 or higher	$25,000 to $500,000
OnDeck	Varies depending on creditworthiness	1 year	625 or higher	Up to $250,000
Biz2Credit	Starting at 4% for unsecured business loan	18 months	660 and up	Up to $100,000
Lendio	Interest rates starting at 8.49%	Two years	680 and up	Up to $2 million

All information was accurate as of 11/15/2023.

How Do Short-Term Small Business Loans Work?

Small business loans are designed for business owners who need cash to cover an immediate expense or set of expenses.Like other types of loans, short-term business loans start with an application. If approved, the borrower receives funding from the lender and pays back what they borrow over time, typically from three months to seven years. Short-term business loans can take a few different forms (as we’ll discuss below), like a credit line, cash advance, or traditional term loan.

What Are Short-Term Business Loans Used for?

Common Uses for Short-Term Business Loans

Small businesses often choose short-term financing to cover small or urgent expenses, including:

Working capital: Cover short-term debts and day-to-day expenses
Inventory purchases: Re-stock or prepare for seasonal inventory needs
Maintaining cash flow: Keep cash available to cover daily, weekly, and monthly expenses when financial inflow is low or delayed
Marketing: Fund short-term marketing campaigns
Expanding or improving: Fund updates to equipment, employee bonuses, competitor acquisitions, or other growth-related costs
Unexpected costs: Cover emergency expenses without jeopardizing the business’ regular finances

Who Is Eligible for a Short-Term Small Business Loan?

Nearly any type of business owner may be eligible for a short-term loan. The shorter repayment terms and lower borrowing amounts equate to less risk for lenders when compared to long-term loans. The following types of businesses (among others) may be eligible for short-term business financing:

Startups
Businesses or individuals with poor credit or no credit
Companies with low monthly revenues

Typical Rates and Fees for Short-Term Business Financing

Rates and fees vary, but the annual percentage rate (APR) is typically higher for short-term business loans than long-term loans. APR is the total cost of the loan, which includes both interest and fees.Short-term business financing options (other than invoice factoring and merchant cash advances) of fewer than five years may carry an interest rate (not APR) typically between 8% and 13%, but that can vary by lender and borrower qualifications.Alternative short-term business financing, such as merchant cash advances and invoice factoring, use factor rates rather than interest rates and can have APRs in the triple digits. Factoring fees are calculated as a decimal figure rather than a percentage and are multiplied by the cash advance amount to calculate the total cost of funding. Factor rates typically range between 1.1 to 1.5 times the cash advance amount, depending on the industry, business history, and revenue.In addition to the interest rate or factor rate, there may be fees associated with your short-term business loan, including:

Application fees: Charges for processing your application and setting up an account
Early repayment fees: Some lenders may charge fees for paying back the loan early
Service fees: Charged in intervals to cover ongoing costs related to your account
ACH or bank wire fees: For certain types of short-term small business loans, there may be fees for transferring funds between bank lenders and borrowers
Early termination: Some companies may charge a fee if you choose to cancel the contract early

Types of Short-Term Small Business Loans

Lenders offer a variety of financial products to support businesses that need quick financing. The following products are common short-term options.

Term Loans

A term loan is one in which you receive a fixed amount of money and pay the loan back in monthly installments. Short-term lenders typically offer term loans with repayment periods of three months to seven years. The business loan term is based on a borrower’s qualifications, loan amount, and other conditions set by the lender.

Business Line of Credit

Short-term business lines of credit are like credit cards but can be secured with collateral and may offer lower interest rates. They give companies access to funding up to a maximum amount, with interest only charged on unpaid balances. For example, if you’re approved for a short-term line of credit with a limit of $20,000 but don’t spend anything in the first month, you won’t owe anything. Then, if you spend $1,000 the next month, you owe a minimum payment that month. Interest accrues until it is paid off.The details of the repayment terms and requirements will depend on the lender and your business’ qualifications. Lines of credit can help manage cash flow and offer the flexibility of accessing funds on a revolving basis.

Invoice Financing and Factoring

Invoice factoring and invoice financing are different short-term financial products for businesses that invoice customers regularly. They are typically most applicable to B2B companies with irregular billing cycles due to delayed invoice payments.

Invoice financing uses invoices as collateral to receive a cash advance, but your business is still responsible for collecting those invoices.
Invoice factoring is when invoices are sold to a factoring company, which collects payments.

Repayment terms on these short-term financing options are typically 30 to 90 days, in line with the due dates of the invoices.

Inventory Financing

Inventory financing is an asset-based, short-term business loan used to purchase inventory so your business can maintain cash flow. The inventory your business has or intends to purchase serves as collateral. Short-term lenders offer funding based on a percentage of your inventory’s value. If you default on the loan, the lender can seize the inventory that you’ve used as collateral. Typically, repayment terms are one year, but can vary depending on the lender.

Merchant Cash Advance

A merchant cash advance allows small businesses (“merchants”) to get cash advances in return for a portion of their future sales or receivables. Repayment on merchant cash advances happen in one of two ways:

Lenders take a percentage of the merchant’s daily credit card deposits.
Lenders withdraw funds from the merchant’s bank account each business day, also known as an automated clearing house (ACH).

This option is often considered a bad option for businesses that have trouble qualifying for other types of financing. Merchant cash advances are technically not loans, and providers do not generally receive the same government oversight as actual short-term lenders. So, it’s important to do research and make sure you trust the cash advance company.

Pros and Cons of Short-Term Business Loans

Short-term lenders offer financing that can be ideal for several small business needs, but there may also be times where they aren’t the right choice. Before you make any final decisions about whether to choose a short-term business loan, it’s helpful to view the pros and cons.

Pros of Short-Term Lending Options

Short-term business loans can be great options for borrowers who need money in a pinch. Here are a few of their biggest benefits.

Fast Capital

Short-term business financing can be a great source of funding when you need cash fast. With a quick and straightforward application process and a greater willingness to lend to new businesses or those with poor credit, online lenders typically offer funding within a matter of days.

Easier Qualification

Short-term business loans or short-term business lines of credit can be helpful because they present less risk to lenders. This means it could be easier to qualify for, particularly if your business is newer or you don’t have good credit. However, if your business is well-established and has good credit, that doesn’t mean you should avoid short-term business financing. In fact, you may be able to secure more competitive interest rates and terms on short-term small business loans because of your qualifications.

Resolve Cash Flow Issues

Many businesses experience cash flow issues, even successful ones. For example, if you have a company based on seasonality or invoicing, some months may have less cash flow to cover things like payroll or repairs.With short-term business financing, you can typically choose a product that serves your cash flow needs, whether it’s with a revolving line of credit or a short-term loan.

Cons of Short-Term Lending Options

Here are a few potential downsides to keep in mind as you shop short-term business loans.

Higher APRs

Short-term business loans often have higher APRs than long-term loan options. The cost of quick, accessible financing is higher interest rates and possibly extra fees. If you are considering a short-term small business loan, make sure you can pay it off within the appointed term.Note: The overall cost of a short-term business loan may be lower than a long-term loan because you make fewer interest payments — you just need to plan carefully.

Payments Occur More Frequently

Due to the shorter terms, lenders may require payments weekly versus monthly. If your sales fluctuate, you may find it challenging to commit to frequent payments.

Risk of Getting in a Debt Cycle

A common pitfall of short-term business financing is getting into a debt cycle. The high rate and short term can easily result in falling behind in payments. You may then need to take out another short-term loan or open a business credit card to cover the first, leaving you in a debt cycle that’s not easy to get out of.Assess your weekly and monthly revenue to make sure you can cover the payments. Consulting a financial planner or accountant may also be worthwhile.

Choosing the Best Short-Term Loan Lender

With so many lenders to choose from, it can be tough knowing where to start. If you have a solid credit score, a few years of business history, and high monthly revenues, you may want to first look into what your local bank or credit union is offering. You can also browse online lenders to see if they may be able to offer you a better rate than your local bank.For those who may not meet the strict qualifications of banks and credit unions, online small business lenders may be able to get you the financing you need. Online lenders are typically willing to work with startups, those with less-than-perfect credit scores, and those with low monthly revenues.

Factors to Consider

In addition to your credit score, business history, and monthly business revenue, the best thing you can do to secure the best rate and terms for your situation is to shop around.Not all lenders and loans are the same, so in order to find the best deal for your situation, it makes sense to inquire with multiple lenders. Most lenders do a soft credit check during the preapproval process, which does not impact your credit score. Once you’ve narrowed your search down to a few lenders, you can start submitting the full applications.

Applying for a Short-Term Business Loan

Application requirements for short-term business financing depend on the lender and product, but there are a few commonalities when applying for a business loan. Generally, you need to take the following steps:1. Check your business and personal credit: This helps determine what you may qualify for.2. Prepare documentation: This typically includes bank statements, tax returns, credit scores, and identifying documents. Some may require further documents, like revenue and profit and loss statements.3. Choose a lender: Compare lenders based on your financing needs, business goals, and qualifications. Consider these questions when choosing yours:

How much financing do I need?
What is the money for?
How soon do I need funding?
What can I qualify for?
What are the interest rates and fees?
Can I afford to pay back the loan on time?

4. Apply for short-term business financing: Pre-qualify and/or fill out the application, providing necessary documents. It’s wise to avoid applying for multiple products at once, as applications typically involve hard credit pulls. (Pre-qualifications generally do not affect your credit score.)Recommended: Checking and Understanding Your Business Credit Score

Alternatives to Short-Term Business Loans

If you’re looking for more long-term financing options for business-related expenses, the following financial products may be useful.

Equipment Financing

Equipment financing can be used for business-related equipment, such as machinery, vehicles, medical devices, and office equipment.This may be helpful if your business needs newer equipment, but you don’t have the savings to purchase it. On the other hand, if your business is well-established and has good credit, you may secure even more favorable rates.

SBA Microloans

An SBA loan is backed by the U.S. Small Business Administration (SBA). SBA microloans can be great short-term business loans if you need funds for:

Working capital
Inventory or supplies
Furniture or fixtures
Machinery or equipment

The maximum microloan amount is $50,000, but the average amount is closer to $13,000.You’ll need to apply through an intermediary lender if you’re interested in this type of financing. The interest rates are negotiated between the intermediary and the borrower, but typically fall between 8% and 13%.

Peer-to-Peer (P2P) Lending

P2P lending allows borrowers to obtain loans directly from investors. This removes the financial institution "middleman" that typically facilitates the loan from the equation, potentially translating to better rates.With P2P lending, business owners can use online platforms to search for investors who align with their businesses’ needs and purposes. Then, if the application is approved, money transfers and payments occur directly through the P2P platform.

The Takeaway

Managing your company comes with many responsibilities, and spending time trying to find the top short-term small business loans shouldn’t be another big project. Lantern by SoFi is here to help simplify the process, so you have more time to nurture your business.By filling out a simple form, you instantly get access to small business financing options matched to your needs and qualifications. So whether you’re just starting or have a rapidly growing business, we have solutions for you.

Frequently Asked Questions

How long is a short-term business loan?

Who is eligible for a short-term business loan?

What is the shortest term for a loan?

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About the Author

Lantern

Lantern is a product comparison site that makes it easy for individuals to shop for products and compare offers with top lenders. Lantern is owned and operated by SoFi Lending Corp., the digital personal finance company that has helped over one million people get their money right.

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