Your Guide to Short-Term Small Business Loans for 2022
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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.
What Are Short-Term Small Business Loans?
Faster to fund Easier to qualify for Lower in total cost
Who Offers Short-Term Business Financing?
How Do Short-Term Small Business Loans Work?
What Are Short-Term Business Loans Used for?
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?
Startups Businesses or individuals with poor credit or no credit Companies that haven’t been around for very long
Typical Rates and Fees for Short-Term Business Financing
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
Business Line of Credit
Invoice Financing and Factoring
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.
Merchant Cash Advance
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).
Pros and Cons of Short-Term Business Loans
Pros of Short-Term Lending Options
Resolve Cash Flow Issues
Cons of Short-Term Lending Options
Payments Occur More Frequently
Risk of Getting in a Debt Cycle
Applying for a Short-Term Business Loan
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?
Alternatives to Short-Term Business Loans
Working capital Inventory or supplies Furniture or fixtures Machinery or equipment
Peer-to-Peer (P2P) Lending
Compare Short-Term Lenders with Lantern Credit
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