Short-term business loan terms are typically 24 months or less
Short-term business loans can be used for emergencies, including equipment replacement, buying inventory or seasonal slumps
Types of short-term business loans include business lines of credit, invoice factoring and merchant cash advances
Short-term business loans offer small business owners a way to get funding when they need it most. Online and traditional lenders offer short-term financing with streamlined applications, quick approvals and funding in five days or less, with repayment required in full in a few weeks to 24 months. Since there are several types of short-term business loans to choose from, take into account your funding needs, the way you plan to use the loan and your repayment ability to help you narrow down which type is best for your small business financing needs.
Ways to use a short-term business loan
Short-term business loans provide flexibility and quick access to capital, making them a top choice for a variety of situations, including covering emergency expenses, startup costs and slow times to keep the business afloat.
1. For upfront costs
Some small businesses complete work for customers or clients and get paid after the project is complete. Startups also typically have costs they must cover to get off the ground. Short-term business term loans and business lines of credit may work best for fast funding of upfront costs.
Since most short-term loans require full repayment within a year or two, they may not be the right fit for long-term startup needs or if you won’t be able to keep up with repayments.
2. For emergency or unexpected expenses
Surprise expenses — such as broken equipment — can make small business owners scramble for fast funding to cover the cost. Short-term business term loans offer predictable fixed payments that may work well if you need dependable repayment terms. A business line of credit is another option since you only pay interest on the amount you draw, and repaying increases your available credit.
A short-term loan may not be the best option for large emergency expenses unless you can meet the repayment terms, as defaulting will damage your credit score.
3. To buy inventory
If the busy season is fast approaching or your products are in high demand, keeping inventory in stock is crucial to your business’s success. Small business short-term business loan types that could offer a solution include:
Business line of credit: Provides the capital you need with fewer costs, as you only pay interest on the drawn amount.
Invoice factoring: Leverages outstanding customer invoices to provide immediate capital to purchase inventory. This works best if you’re a B2B company.
Merchant cash advance (MCA): Provides a lump sum upfront with repayments taken daily or weekly from credit or debit card sales.
A business line of credit may be the safest choice to buy inventory. Invoice factoring depends on your clients’ creditworthiness and could negatively impact your profit margins if they default on their invoices. MCAs can have extremely high fees and are best only for businesses with substantial card sales.
4. To cover seasonal income gaps
Seasonal businesses can fail to stay afloat during the off-season. Short-term business financing can provide the income you need for low-income months.
Consider short-term term loans or a business line of credit to fund your seasonal income gaps for more favorable and predictable repayment terms. Researching small business lenders can help you get the best loan terms to avoid defaulting and affecting the next season’s income.
5. To pay for marketing
Investing in marketing can generate revenue and bring awareness to your small business. Consider a business line of credit to meet advertising expenses. They’re a good fit for variable expenses, such as:
Social media ad campaigns
Influencer collaborations
Hiring an agency for website development or market research
Paying for print, radio or TV advertising
Marketing strategies can take months or even years to pay off. Make sure you can afford the payments before taking out a short-term business loan to fund your advertising expenses.
6. To cover cash flow interruptions
Some businesses run on current invoices, and if a customer doesn’t pay on time, you could end up falling short on paying your bills or your employees’ paychecks. If a customer unexpectedly notifies you that they’ll be a few weeks late paying their invoice, a short-term business loan could help you stay on track without falling behind.
A business line of credit or term loan would be a good solution for temporary cash flow interruptions. These types of short term loans for business usually have fewer costs than MCAs or invoice financing options.
Alternatives to short-term business loans
If you decide a short-term loan may not be right for your needs, consider the alternatives. Many businesses turn to other types of funding to meet their short- and long-term financial needs.
There are multiple ways to use a short-term business loan, including emergency expenses and upfront costs. Keep in mind, though, that a short-term loan may not be the best choice for your needs. Weighing the pros and cons of this type of loan can help you determine if there is a more appropriate option. Make sure you understand business loan requirements before diving into the application to raise your chances of quick approval.
Frequently asked questions
What is a short-term business loan?A short-term business loan is a type of funding typically with short repayment terms. Repayment terms for short-term loans usually range from a few weeks to 24 months.
Are short-term business loans good?Short-term business loans can be good for small businesses needing funds fast, like for emergency situations, time-sensitive business opportunities or seasonal slumps. However, if you don’t need funding fast, a business loan with a long repayment period may be more beneficial, as short-term loans can come with higher interest rates and fees.
When would a business use short-term financing?Businesses can use short-term financing in several situations, including to cover upfront costs, emergencies, seasonal fluctuations and marketing.
