Short Term Loans for Business: Many people dream of starting and growing a business in America. Some dream of starting a tech startup in Silicon Valley, and some share the dream of opening a restaurant in New York or a boutique in Texas. The dreams can vary, but the entrepreneurial spirit thrives across the country.
It is indeed true that a great idea and hard work are the key ingredients for starting a business. However, these two alone are not enough. Starting a business demands capital. Many business owners struggle to find the necessary funding for their businesses. This is where the short-term loans for businesses come into play.
What is a Short Term Loan for Business?
Short-term loans are the fastest way for businesses to get funding to meet their immediate financial needs. The repayment period for short-term business loans is usually 12 months. However, it can range up to 24 months. No one wants their business to be burdened by long-term debt. Hence, short-term loans are a good alternative for quick funding.
Types of Short-Term Loans for Business
There are different types of short-term business loans tailored to fit the specific needs of businesses. Let’s explore a few of them to understand which fits best your needs.
1]. SBA Loans
Small Business Administration (SBA) loans are a popular financing option for small businesses. With partial guarantees from the U.S. Small Business Administration, these loans offer lower interest rates and extended repayment terms than traditional business loans.
SBA loans are, therefore, an attractive choice for borrowers seeking affordable and flexible financing solutions.
2]. Merchant Cash Advance
MCA or Merchant Cash Advance is another type of short-term business loan having one of the highest approval rates compared to other bank loans. Businesses in need of quick capital can opt for MCA. It offers a lump sum payment in exchange for a percentage of future revenue. MCA is a perfect funding option for businesses with fluctuating incomes. Unlike traditional loans, the approval process is quick, and the paperwork is minimal.
3]. Investors
Investors are a valuable alternative to traditional short-term business loans. They offer quick access to funds and flexible repayment options. Investor funding is a great solution to meet immediate financial needs and position the business for sustained growth. The investors focus on the potential and future growth of the business. Hence, the requirements are not strict which makes it an attractive choice for borrowers.
4]. Crowdfunding
Crowdfunding is another type of short-term business loan that involves asking people to contribute money to your business through online platforms. These people can be your family, friends, investors, or others. Crowdfunding harnesses the reach of the internet to raise funds for meeting the immediate financial needs of businesses. Different types of crowdfunding include-
- Reward-Based Crowdfunding- It is a type of crowdfunding where funds are offered in exchange for rewards. This type of crowdfunding is usually preferred by companies or start-ups launching a new service or product.
- Equity-Based Crowdfunding- In this type of crowdfunding, contributors are offered a share of the company in exchange for their investment.
- Debt-Based Crowdfunding- It involves getting a loan from a crowd of investors. Businesses agree to pay back the loan over a certain period.
- Donation-Based Crowdfunding- This is a type of crowdfunding where contributors donate money to the business group because they believe in the cause. The contributors do not expect a financial return.
5]. Business Loan Brokers
Another way to get short-term loans for businesses is through business loan brokers. They help you get funding for your business by connecting you with different lenders. They learn about your business plans and goals and use their industry knowledge and connections to find you the right business loan. Business loan brokers may charge a fee, but they help secure loans with the most competitive offers and lower interest rates.
6]. Business Line of Credit
A line of credit is a flexible short-term business loan that offers businesses a fixed amount of money that can be accessed whenever needed. The fact that the interest is charged only on the borrowed amount helps businesses to manage cash flows and deal with unexpected expenses. We can call a line of credit a revolving loan. This type of short-term loan is ideal for businesses that are uncertain about their exact funding needs, as it allows them to access funds up to a predetermined limit as required.
7]. Equipment Financing
Equipment financing provides businesses with funds to purchase or upgrade equipment. The repayment period is short, and the lender has the security of the equipment as collateral. Equipment financing is an excellent option for start-ups or early-stage companies to help get their business off the ground.
According to the Federal Reserve Banks’ Small Business Credit Survey, only 42% of small businesses have fully met their financial needs and only 31% of those who applied for traditional loans received all the funds they sought in 2021. It proves a need to bridge the financial gap for small businesses to grow and succeed. Hence, there is a rising significance of alternatives for short-term business loans. Fintech companies like Merchant Marketplace (MMP) aim to assist American small businesses in achieving their financial goals.
FAQs
1]. How to get a short-term business loan?
The first step to securing a short-term business loan involves assessing your financial needs and determining the loan amount. Get an idea about your personal and business credit scores to check eligibility. Collect necessary financial documents. Research various loan options to find the best terms and rates tailored to your needs. If everything looks good, proceed with the formalities to sign the agreement to accept the loan and ensure you make timely repayments to maintain a good credit score.
2]. Where can I get a short-term business loan?
Depending on your financial needs, you can get short-term business loans from various sources. Online lenders and fintech platforms are convenient sources to get quick funding. Different types of short-term business loans include SBA loans, Merchant cash Advances, line of credit, crowdfunding, investors, etc.
3]. What is a short-term business loan?
A short-term business loan is a financing option designed to meet the immediate financial needs of businesses. Short-term loans are favored by business owners due to their fast approval rates. There are various types of short-term business loans including SBA loans, Merchant Cash Advance, Line of Credit, crowdfunding, Investors, etc.
4]. What is the smallest business loan you can get?
Short-term business loan ranges from $5000-$75000 in the U.S. The loan amount depends on the platform you are lending from and your business requirements.
