5 Year Deadline How Short Term Business Loans Can Help Your Business Prosper
Ever found yourself in need of cash to pay off a vendor, bridge the gap between seasons, or pay for materials before a big job? There’s 3 main categories of small business loans, each with their own pros and cons. We’ve decided to help you decide what’s right for your current situation.
If you thought you were out of luck, you aren’t alone. Most business owners still think that banks control the lending market.
If you don’t have a 680+ credit score (and 1 month to wait to get approved, let alone funded), you were out of luck.
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Now, you can be approved and funded for a business term loan often within 24 hours (usually short term business loans in that short of a time period) and with little to no credit requirement.
The only question is what type of business term loan product is best for you based on your specific needs: a short term business loans, medium term business loans, or long term business loans.
So, below we’ll be breaking down the difference between each of the 3 main types of term business loans as well as the main loan products within each category, including:
Short Term Loan
With the above information in hand, you’ll be able to make an informed decision about which type of term loan will best fit your need for capital.
Keep in mind that some types of business financing don’t fall strictly into one bucket but take up 2 or all 3. The repayment period for equipment financing, for example, can be 1 year.
We’ve specified which loan types have a wider term range above, but keep in mind as you continue reading that this breakdown is less a rule and more a helpful framework for understanding the typical repayment term associated with each type of financing.
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Each type of term loan, whether short-term or medium-term, functions differently from one another, some having no minimum credit requirement, others with high limits, and all with blazing fast approval and funding time frames when you compare them to traditional bank loans.
Unsecured business loans are the closest to a traditional bank loan amount the 5 types of short-term business loans on this list.
That’s because an unsecured business loan is a lump sum you receive in exchange for a promise to pay back that amount at a specified interest rate.
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That interest rate is typically higher than a traditional loan. However, that’s because unsecured business loans don’t require hard collateral such as cash savings or property like traditional loans do, so your risk is greatly reduced.
Rather, a business line of credit is a consistent source of cash which you can tap into at any time, very much like a credit card.
However, the flexibility and peace of mind you get knowing you always have access to the capital you need to keep your business running smoothly– especially in case of seasonality or an industry such as construction where you have to purchase materials before you’re paid– is invaluable.
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A merchant cash advance (or MCA, split funding) works like a traditional loan on the front end. However, where it differs from traditional loans is primarily in how its repaid.
With a merchant cash advance, how much a lender will approve you for is based on your credit card transactions. The more revenue you generate through credit cards, the more you may be approved for.
What’s great about an MCA is because that amount is a percentage, it fluctuates with your business. When sales are down, that amount is lower. That makes it easier to stay consistent with repayment.
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The lender buys your invoice from you, typically for around 90% of the invoice amount, and they then act as the collector for that invoice, communicating directly with your customer to collect payment.
Invoice factoring is great for business owners who don’t like the idea of (or aren’t in the position of) taking on additional debt since you’re simply collecting on invoices you’re already owed by your customers.
Asset-based lending is a broad term that includes several types of financing options with one thing in common: they’re secured by tangible (hard) or liquid assets. That amount you can borrow is also based on the same asset(s).
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Those assets can be tangible such as property or equipment or liquid assets such as cash savings or accounts receivable. The loans can be structured as either a medium-term loan or a line of credit.
Equipment factoring is one of the more common and useful types of asset-based financing, and its terms can vary a bit, so let’s take a minute to highlight it:
On the flip side, if your business is growing, you might not have the cash on hand to purchase new, expensive equipment– and that would hinder growth.
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Those are both two of the primary reasons that equipment factoring is so useful. In both cases, you’re able to get the brand new equipment you need within as little as 1 week and keep business moving forward without a hitch.
You then pay that loan back with interest, typically with terms between 2-5 years. Though, as we mentioned, this can sometimes be a short-term loan– repayment in the 1-2-year range– in rare cases.
Not to be confused with the categorizing of the various business loan types based on term length (as we’ve done throughout this page), this refers to a specific loan product often used to fill an immediate short-term need for capital.
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Because this is a very general type of business loan, it’s important to check with the lending institution you’re working with as language can vary from one to another regarding the loan terms and other specifics.
Similar to unsecured business loans in that they’re a lump sum of cash, term loans may be even more like traditional bank loans. That’s because they typically require some kind of hard collateral such as liquid savings or property.
The upside to this is that these loans tend to be very quick and easy to acquire and you can use the funds for virtually any business need.
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None of the medium or short-term business loans we’ve mentioned thus far usually have terms above 5 years, so those loans and other types of business financing that do are unique among business loan offerings for more than one reason.
SBA loans can have shorter terms, as short as 1 year in some cases. However, they tend to have much longer repayment terms depending on the loan product, lender, and borrower’s qualifications.
The most well-known of business loan types, you can still walk down to your local bank branch and obtain a loan. However, although bank loans are insured by the FDIC, they’re not as attractive as they once were.
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In addition to this, compared to most private lenders, banks move much slower and require a ton more paperwork. It can take 1+ months just for approval in most cases.
The final type of long-term business funding is equity funding. With equity funding, others invest in your business through a variety of means.
Typically, a firm will hold an investor’s funds for up to 10 years in a variety of stocks (companies of your choice), during which case depending on the type of funding you’ll then either repay the loan (if it’s a crowdfunded loan, for instance) or do nothing if it’s an investment.
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So, what can you use a medium or short-term business loan for? And does each type of loan have a different use?
Some types of business loans have a very niche use. For instance, equipment factoring can only be used to purchase equipment that the business will use.
And this is just a short list of the types of things you can pay for. Unsure of which type of short or medium-term financing option is best based on what you need funds for? Use the chat feature to get in touch and we’ll be happy to help give you a better idea.
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The short and medium-term business loan categories include a wide variety of loan types, so application requirements do vary a bit between each.
While more may not be required than the basic documents listed above, it’s best to get everything together that you have just in case. That way, you can expedite the approval process, which will get you your funds quicker.
Whether you need something with no minimum credit requirement, that you can tap into on a regular basis, helps you avoid additional debt, or makes repayment flexible, there’s a solution that’s fit to your needs.
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Not sure which type of term loan best fits your needs? Take 2 minutes to fill out our short application and we’ll help you figure out the funding solution that’s ideal for you.The world of small business financing can be confusing. There’s no way around that. Getting a grasp of all the different loan products available, and understanding which is the best option for your specific business, can sometimes feel like learning an entirely new language. But, all is not lost. We are happy to say that small business term loans, which the following article covers in-depth, is probably the most straightforward financing option available to business owners.
Whether you’re purchasing inventory in bulk or considering