What is a short term business loan?

It’s no secret that running a business requires significant funding. As an entrepreneur in today’s economy, it’s more than likely that you’ll need to turn to some kind of financing option to fund your business. If that’s the case, you’re probably wondering what a short term business loan is and how it could benefit you.

If you’re looking to make a specific one-time purchase, a short term business loan may be exactly what you need to grow your business. A short term business loan is a lump-sum provided by a lender up front, and the amount gets paid back through consistent payments over a determined repayment term. The borrower also pays a percentage of interest.

Given that the amount immediately begins collecting interest, this kind of financing is usually preferable for one-time purchases. The amount and its interest are normally paid within a year of getting the loan. This type of loan can be beneficial for small businesses that are not eligible for a credit line from the bank. It is normally used to meet a temporary business capital need. For example, small business loans are ideal for buying inventory for your business or specific equipment.

What are the advantages of a short term loan?

• 1. Shorter period for accumulating interest: since this kind of loan is usually paid off over a period of only 6 to 18 months at most, the amount of interest paid is significantly less than compared to long term loans.
• 2. Funds can be obtained quickly: these loans are generally considered to pose less of a risk since the term is so short, the lender does not consider that the borrower’s ability to make payments will change significantly over the repayment period. It is therefore much quicker to obtain a short term business loan than it would be to obtain a loan over a longer term.
• 3. Easy to qualify: a small business loan is ideal for individuals that have small businesses or low credit scores. Since the amounts borrowed are usually small, it is normally easier to meet the criteria for getting approved for a short term loan.

Are you eligible for a short term business loan?

The lender you wish to borrow from will take into consideration a number of criteria and information to determine whether you are eligible. This information will include records for your payment history for past loans, including payment records to your suppliers, as well as your company’s cash flow over the last 3-5 years. The lender may also ask you to submit your income statement over the same period of time.

Your credit score will also be taken into consideration along with your credit history. Most term loan applications will use an algorithm to determine your business’ eligibility. The algorithm normally gives more weight to your personal credit score than your business credit score. Using this information, the potential lender will determine whether you are eligible for an unsecured, or secured (collateral required) loan.

Overall, a small business loan is an excellent way for entrepreneurs to quickly get the funds they need for one-time purchases. This kind of loan can be obtained quickly, and its eligibility criteria are generally less stringent than those applied to loans over a longer term.